Archive - May 2014 - Story

In several eastern Ukrainian towns over the past week, the military opened fire on its own citizens. Dozens may have been killed in the violence. Although the US government generally condemns a country’s use of military force against its own population, especially if they are unarmed protesters, this time the US administration blamed the victims. After as many as 20 unarmed protesters were killed on the May 9th holiday in Ukraine, the State Department spokesman said “we condemn the outbreak of violence caused by pro-Russia separatists.” The real question is why the US government is involved in Ukraine in the first place. We are broke. We cannot even afford to fix our own economy. Yet we want to run Ukraine? Does it really matter who Ukrainians elect to represent them? Is it really a national security matter worth risking a nuclear war with Russia whether Ukraine votes for more regional autonomy and a weaker central government? Isn’t that how the United States was originally conceived? Has the arrogance of the US administration, thinking they should run the world, driven us to the brink of another major war in Europe?

China’s placement of the giant state-owned oil rig HD-981 in Block 143 inside Vietnam’s Exclusive Economic Zone (EEZ) on May 2 was unexpected, provocative and illegal. China’s deployment of the rig was provocative because the oil rig was accompanied by as many as 80 ships, including seven People’s Liberation Army Navy warships. When China first announced the deployment of its oil rig, it stated that its operations would terminate on August 15. This provides plenty of time for both sides to orchestrate and manage the confrontation and provide a face saving means for ending the confrontation.

With 560,000 visitors a year, Dracula's Castle may not be the ideal seclusion spot for the uber-wealthy European real estate magnate, but, as the realtor notes "n the right hands it has the potential to generate far more revenue than we could ever imagine," - we suspect followed by an echoing 'mwuahahahahaha'. Construction on Bran Castle (for it's not actually Vlad The Impaler's residence of old but he was imprisoned there briefly) began in 1377 and as HuffPo notes, the 57-room manor on 22 acres has been on the market several times in recent years, with investors at one point hoping to get $135 million. As the firm running the castle noted, “If someone comes in with a reasonable offer, we will seriously entertain the idea." We suspect people will be dying to buy this and with rates so low, it won't bleed you dry either...

There is no shortage of theories or writings related to the rise of the Third Reich and the subsequent Holocaust. Students of history as well as Second Amendment enthusiasts will find this a fascinating book and will find parallels between gun prohibition in pre-Nazi and Nazi Germany, and attempts to prohibit types of gun ownership and implement other forms of gun prohibition in the United States today. Less government regulation and a tradition of rejecting tyranny could have led to a different outcome in Germany. Instead, systematic creation and manipulation of firearms registration and regulations, coupled with the decimation of individual citizen’s rights, enabled Hitler’s dictatorship and the slaughter of millions of innocent Jews and citizens of Nazi-occupied countries, as well as tens of thousands of Germans. It remains for all of us to wonder what might have been had people refused to register their firearms. Indeed, we should all take note and never forget.

The "Shiller P/E" is much in the news of late, and, as ConvergEx's Nick Colas suggests, with good reason. It shows that U.S. equity valuations are pushing towards crash-worthy levels. This measure of long term earnings power to current price is currently at 25.3x, or close to 2 standard deviations away from its long run median of 15.9x. As Colas concludes, the writing is on the wall and we must all read it. Future returns are likely going to be lower. Competition for investor capital will get even tougher. That’s what the Shiller P/E says, and it is worth listening.

Is there anything fundamental to explain why the equity indices of the "Fragile Five" countries, Brazil, South Africa, Indonesia, India and Turkey, have regained their recent highs? According to GaveKal the answer is a resounding no: "As investors, we like equity rallies to be propelled by fundamental factors, like earnings re-ratings or growth surprises. But there is little behind this rally to suggest any sustainable economic healing." So what is pushing this particular subset of risk higher? Why the global liquidity tsunami of course.

Does this look in any way normal to anyone?

Last week it was Russia, so now it is America's turn. As the U.S. Strategic Command reported earlier, the US will conduct Exercise Global Lightning 14 from May 12-16 in coordination with other combatant commands, services, and appropriate U.S. government agencies "to deter and detect strategic attacks against the U.S. and its allies." Among the units taking part in this drill are bomber wings that will fly approximately 10 B-52 Stratofortresses and up to six B-2 Spirit bombers "to demonstrate flexibility and responsiveness in the training scenarios throughout the continental U.S."

A bill passed in a House energy committee aims to amend the rules for cross-border energy projects, suggesting the political fight over Keystone XL is over.

What can one say... Europe's stock markets are booming, bond yields (and spreads) are tumbling... and earnings growth expectations are - collapsing...

There's not much good news for housing these days. For a little while, the Fed's suppression of interest rates juiced housing enough to distract Americans from weak job creation and stagnant real wages. Don't have a job? No problem! Just borrow against the appreciation of your house to feed your family. But Yellen's interest rate wand looks to be out of magic. The government had a pipe dream of white picket fences for everyone. But Americans can't refinance their way to wealth. Especially in the Greater Depression.

"Responsibly," Bloomberg surveyed adults aged 26 and older across America and found that almost one-third of D.C. residents report binge-drinking in the last month. Utah, perhaps unsurprisingly, had the lowest binge-drinking percentage at a mere 15% (defined as five or more drinks in one day).

"My country can cry all it likes about yesterday’s referendum vote in eastern Ukraine, but we set the process in motion by sponsoring the overthrow of an elected Kiev government that was tilting toward Russia and away from NATO overtures. The president elected in 2010, Viktor Yanukovych, might have been a grifter and a scoundrel, but so was his opponent, the billionaire gas oligarch Yulia Tymoshenko. The main lesson that US authorities have consistently failed to learn in more than a decade of central Asian misadventures: when you set events in motion in distant lands, events, not policy planners at the State Department, end up in the driver’s seat."

Q1 2014 was the first negative EBITDA quarter for Elizabeth Arden since before Lehman (June 2008) and worst quarterly EBITDA loss for the company since Q3 2001... and the rest of the data was terrible:

*ELIZABETH ARDEN 3Q SALES $210.8M, EST. $255.7M; 3Q ADJ. LOSS/SHR 84C, EST. BREAK-EVEN

The reason... come on you can guess... "an unprecedented number of weather-related store closures in our North America business during the quarter."

“I am often asked why I do not support a more rapid deceleration of our purchases, given my agnosticism about their effectiveness and my concern that they might well be leading to froth in certain segments of the financial markets. The answer is an admission of reality: We juiced the trading and risk markets so extensively that they became somewhat addicted to our accommodation of their needs… you can’t go from Wild Turkey to cold turkey overnight."

- Fed Governor Richard Fisher