Archive - Jun 22, 2014 - Story

By now everyone knows there is an unprecedented student debt bubble, amounting to well over $1 trillion and rising at a rate of nearly $200 billion per year. However, what is far less known, is what all these hundreds of billions in government loan proceeds are being spent on. The following two charts should shed some light on this all important matter just how Government money goes from Point A to Point B, using indebted to the hilt students as a pass-thru.

A country dies slowly. Those living during the decline of Rome were likely unaware that anything was happening. The decline took over a couple of hundred years. Anyone living during the decline only saw a small part of what was happening and likely never noticed it as anything other than ordinary. Countries don’t have genetically determined life spans. Nor do they die quickly, unless the cataclysm of some great war does them in. Even in such extreme cases, there are usually warning signs, which are more obvious in hindsight than at the time. Few citizens of a dying nation recognize the signs. Most are too busy trying to live their lives, sometimes not an easy task. Most cannot conceive of the death of a nation. But signs or symptoms precede death for a country often as they do for a person...

S&P 500 futures are jumping exuberantly as Japan and China PMIs print above expectations and back in expansion territory (Japan best in 3 months, China best in 7 months). This is China's best 2-month PMI rise since Oct 2010 (which makes perfect sense amid the collapsing housing market and CCFD ponzi probe) - which provides the perfect propaganda meme that targeted RRR cuts workl. However, while stocks don't care to scratch the surface, there are 2 glaring similarities that could become a problem. Both China and Japan saw employment drop (Japan's first in 11 months) and furthermore both China and Japan saw input prices rise and output prices decline - not exactly the margin expansion dream everyone is hoping for... and all this as China's Beige Book shows the slowdown deepening on most pronounced quarter-on-quarter drop in 10 quarters of surveys.

Liquefied natural gas (LNG) to Europe isn’t a get-rich-quick scenario for the impatient investor: It’s a long, strategic play for the sophisticated investor who can handle no small amount of politics and geopolitics along the way. When it comes to Europe, Russia’s strategy to divide and conquer has worked so far, but Gazprom is a fragile giant that will eventually feel the pressure of LNG.  Robert Bensh is an LNG and energy security expert who has over 13 years of experience with leading oil and gas companies in Ukraine. He has been involved in various roles in finance, capital markets, mergers and acquisitions and government for the past 25 years. Mr. Bensh is the Managing Director and partner with Pelicourt LLC, a private equity firm focused on energy and natural resources in Ukraine.

Well this is awkward. A week after the Polish central bank was busted offering favors to the government (exposing its utter un-independence); the same Polish news magazine has obtained s ecret recording of Foreign Minister Radoslaw Sikorski saying that Poland's relationship with the United States was worthless. The Wprost news magazine said the recording was of a private conversation between Sikorski and Jacek Rostowski (finance minister) with such headlines as "you know that the Polish-US alliance isn't worth anything;" also describing Warsaw's attitude towards the United States using the Polish word "murzynskosc" - roughly translated as a negro slave - "It is downright harmful, because it creates a false sense of security ... Complete bullshit. We'll get in conflict with the Germans, Russians and we'll think that everything is super, because we gave the Americans a blow job. Losers. Complete losers." USA - making friends wherever they go.

Now that the Iraq proxy war scene is set, and as we reported on Friday, Prime Minister Maliki has become a pawn in yet another middle-east war between the west and the petrodollar (with both Saudi Arabia and the US making it clear Maliki has to go) and Russia (with Putin expressing his full support for the prime minister), events will likely unfold at an even faster pace. Sure enough, even this otherwise quiet weekend, in which the world is supposed to put wars on the backburner and focus on the world cup, is chock-full of Iraq news upates. Let's begin.

With almost metronomic regularity, Japan will gush forth a headline proclaiming the ever-closer time when all the nation's retirees savings will be greatly rotated to the stock market and away from the nation's largest bond market in the world. This week was no exception; however, as Nikkei Asian Review reports, it appears the "all-talk" has turned to action...The Government Pension Investment Fund and other public pensions sold about 1.8 trillion yen ($17.4 billion) more in Japanese government bonds than they bought in the first three months of the year, fueling speculation that the GPIF may be rebalancing its portfolio sooner than expected. It seems rotating away from government bonds (which the GPIF has been worried about since 2011) into junk bonds and junk stocks is a far better use of 'wealth' - we can only imagine the GPIF risk models just got switch to '11'. As we explained last year, Japan's Plan B is not only not a panacea, but it is a House of Bonds Cards that would not survive an even modest gust of wind, and an even more modest contemplation into its true internal dynamics. We would urge Messrs Abe and Kuroda to come up with a fall back plan to the fall back plan before it, once again, becomes too late.

After hundreds of years knowing that no matter how many 'double-taps to the head' or 'sleeping with the fishes' orders they give, a quick penance and the mafia is going to pass through the pearly gates; the Pope, having met the father of a 3-year-old boy slain in the region's drug war, declared that all mobsters are automatically excommunicated from the Catholic Church. "Those who go down the evil path, as the Mafiosi do, are not in communion with God. They are excommunicated," Pope Francis decreed during his one-day pilgrimage to the southern region of Calabria - the heart of Italy's biggest crime syndicate. With the world already having a ChairSatan, is it now time for The SatanFather?

Swallowed alive with strange bedfellows... yep, that about sums it up.

The Federal Reserve’s policy of quantitative easing has produced a historically prolonged period of speculative yield-seeking by investors starved for safe return. The problem with simply concluding that quantitative easing can do this forever is that even speculative assets have to compete with zero. When a safe zero return is above the medium or long-term return that one can estimate for a very risky asset, the rationale for continuing to hold the risky asset becomes purely dependent on expectations of immediate short-term price gains. If speculative momentum starts to break, participants often try to get out the door simultaneously – especially if there is some material event that increases general aversion to risk. That’s the dynamic that produces market crashes.

"After several weeks, Gold is setting up for a sell, US Treasuries are set to resume their bear trend, and the USD is set to resume its bull trend. Get ready..." is the ominous warning BofAML's Macneil Curry sets forth in his technical treatise this weekend. Despite the plethora reasons for rates to go lower for longer (and treacherous market conditions expected ahead) and the various fundamental and technical drivers of recent precious metals strength, Curry says it's time.

We are sure this will end well. Just as China took the 'if we build it (on free credit), they will come' growth model to extremes in real estate; it appears their ambitions in nuclear energy production are just as grandiose. However, just as they lost control of the real estate market, Bloomberg reports China is moving quickly to become the first country to operate the world’s most powerful atomic reactor even as France’s nuclear regulator says communication and cooperation on safety measures with its Chinese counterparts are lacking. France has a lot riding on a smooth roll out of China’s European Pressurized Reactors (EPRs) as it is home to Areva, which developed the next-gen reactor, and utility EdF, which oversees the project. French regulators, speaking in parliament, warned, "the Chinese safety authorities lack means. They are overwhelmed."

One of our favorite lines about the current oligarch theft continuing to occur throughout the world is courtesy of the “Artist Taxi Driver,” who likes to state: “This is not a recession its a robbery.” Truer words were never said, but this theft goes back a lot further than the latest economic catastrophe. As we all know by now, real median wages haven’t increased in the U.S. for the past 45 years, while at the same time, so-called economic growth according to traditional metrics has exploded higher. As yesterday’s article from the Guardian below demonstrates, this is not just an American problem. It is pervasive throughout the Western world. So what happened?

Back in 2006, after the second US invasion of Iraq culminated if not with the discovery of the WMDs (which were the pretext for the invasion in the first place), but the unearthing (literally) and kangaroo court trial of Saddam Hussein, the US was quick to announce "mission accomplished." Recent events have made a mockery of that claim, however what is truly the straw that broke the back of poetic justice, to mix metaphors, are reports from local media that as part of its blitzcampaign to take over northern Iraq, ISIS found and the promptly executed Rauf Rashid Abd al-Rahman, the judge who sentenced Saddam to death: a death which to many was the crowning moment of the second US invasion of Iraq, and the confirmation of successful US foreign policy.

One month ago we showed that when it comes to the cost of basic (and not so basic) health insurance, the US is by far the most expensive country in the world and certainly among its "wealthy-nation"peers. It would be logical then to think that as a result of this premium - the biggest in the world - the quality of the healthcare offered in the US among the best, if not the best, in the world. Unfortunately, that would be wrong and, in fact, the reality is the complete opposite: as a recent study by the Commonweath Fund, looking at how the US healthcare system compares internationally, finds, "the U.S. fails to achieve better health outcomes than the other countries, and as shown in the earlier editions, the U.S. is last or near last on dimensions of access, efficiency, and equity." In other words: most expensive, yet worst in the developed world.