Archive - Jun 3, 2014 - Story

While Russia's "Top Gun" drills were underway on the borders of eastern Europe, it appears the Russian air force was practicing "unusually close flying" in another continent. As Bloomberg reports, the U.S. RC-135U Combat Sent electronic intelligence plane was "conducting a routine mission off Russia's east coast near Japan on April 23 when the Russian fighter flew within about 100 feet (30 meters) of its nose. Asked why the Pentagon didn’t disclose the incident until it was reported today by the Washington Free Beacon, spokesman Army Colonel Steve Warren said, “I don’t have a good answer for you.” China and Japan did a similar "Top Gun" move in May.

It’s been obvious for quite some time that the so-called “war on terror” is nothing more than a fear-mongering induced power grab; a convenient excuse to strip the citizenry of its civil liberties and humanity. Many commentators, including myself, have predicted for years that the entire counter-terror juggernaut that has been constructed post-9/11 would be ultimately redirected upon the domestic population. Snowden’s heroic whistleblowing has already proven without a doubt that the government spy apparatus (along with tech company complicity) has been zeroed in on the domestic population for quite some time, but is the situation about to escalate? Are the feds so fearful of their own people, they are about to focus all their counter-terror energy on U.S. citizens? It appears so.

Nope, no bubble here... The FT reports that issuance of payment-in-kind (PIK) notes have doubled this to reach $4.2bn. "We call it the yield-hunger games," jokes one bond manager as even the most modest pick-up in yield is in great demand - no matter what the risk. As another manager warns, "I have no doubt that the resurgence of PIKs and other risky debt deals is a sign that we are setting the stage for the next down cycle."

The most humiliating economic SNAFU in recent history continues, and this time the rabbit hole goes really deep because somehow the worst unadjusted manufacturing ISM

The dismal reality in America that we first exposed over 18 months ago is that 'work is punished'. Simply put, for increasingly more Americans it is now more lucrative - in the form of actual disposable income - to sit, do nothing, and collect various welfare entitlements, than to work. As the following brief clip exposes, supposedly well-intentioned welfare programs drastically decrease benefits at certain income thresholds - which in effect can make a breadwinner and his/her family worse off when they start earning more. Sound absurd? That's because it is.

Today you can’t go 10 minutes without tripping over an investment manager using the phrase “Minsky Moment” as shorthand for some Emperor’s New Clothes event, where all of a sudden we come to our senses and realize that the Emperor is naked, central bankers don’t rule the world, and financial assets have been artificially inflated by monetary policy largesse. Please. That’s not how it works. That’s not how any of this works.

With Thomas Piketty's book on inequality topping the charts among the book-reading common-folk, ambitious ex-bankers are enjoying the high-life in ways not even Gordon Gecko could have dreamed up. If greed is good, then this is better as former Lehman execs sell the first ".luxury" website domain names and ex-Goldmanites pitch "curated environments that optimize health" for home living with 'Vitamin-C-infused showers'. Of course, as one banker opines philosophically, "it's all about balance...it's important that people who have the capital are making it as useful as possible."

Citing "tangible economic benefits," the FAA has decided that the current prohibitions against commercial uses of drones in US skies can be lifted. As WSJ reports, Federal regulators said they are considering exempting a handful of companies working for the film and television industry with proposed rules for small drones are expected to be issued by the end of the year, though they aren't likely to become final until 2015 or later. While law-enforcement agencies already can rely on procedures to obtain FAA approval to fly some of the largest models in designated airspace, this shift by the FAA opens the door to the thousands of drones expected to plague US skies in the next few years.

With 97.5% of the S&P 500 having reported earnings, as of May 29, 2014, we can take a closer look at the results through the 1st quarter of the year. Despite the exuberance from the media over the "number of companies that beat estimates" during the most recent reported period, operating earnings FELL from $28.25 per share to $27.32 which translates into a quarterly decrease of 3.4%. The ongoing deterioration in earnings is something worth watching closely.  The recent improvement in the economic reports is likely more ephemeral due to a very sluggish start of the year that has led to a "restocking" cycle. This puts overly optimistic earnings estimates in jeopardy of being lowered further in the coming months ahead as stock buybacks slow and corporate cost cutting becomes less effective.

Earlier today, we read reports out of Russian Itar-Tass stating that east Ukraine militia had shot down a Ukraine gunship and a Su-25 fighter jet, as well as four APC. We were waiting for an official confirmation from Ukraine as the level of propaganda on both sides is somewhat tricky to filter. We got at least partial proof moments ago from Ukraine's military spokesman Seleznyov, who said via Bloomberg: UKRAINE SAYS 2 SOLDIERS DEAD, 42 WOUNDED TODAY IN EASTERN OP;UKRAINIAN SEPARATISTS SHOOT DOWN 2 HELICOPTERS: SELEZNYOV

Here is what else Itar-Tass reported from a conflict which suddenly all Western media has forgotten.

Moments ago a massive explosion, accompanied by a raging fire seen from miles away, has occurred at a Shell Oil production plant in Moerdijk, Netherlands, reports the Omroep Brabant. Two “enormously loud bangs” were reported by bystanders. Bystanders reported a pink flash of light followed by flames that were meters high.  According to a Dutch reporter, the explosion shook the neighborhood houses as if an earthquake occurred. Marieke van Wijk of the Safety Mid and West Brabant reports that the fire occurred during an exchange of services.

Two weeks ago when news broke about the first confirmed instance of gold price manipulation (because despite all the "skeptics" claims to the contrary, namely that every other asset class may be routinely manipulated but not gold, never gold, it turned out that yes gold too was rigged) we said that this is merely the first of many comparable (as well as vastly different) instances of gold manipulation presented to the public. Today, via the FT, we get just a hint of what is coming down the pipeline with "Trading to influence gold price fix was ‘routine’." We approve of the editorial oversight to pick the word "influence" over "manipulate" - it sound so much more... clinical.

"... the Fed is overpromising and over-reaching on what it can actually deliver. It has always been quite a leap of faith to believe that ever-rising asset prices would create a wealth effect adequate enough to boost consumption, so as to make progress on the Fed’s dual mandates without causing adverse financial markets conditions.... After the 2008 crisis, policymakers have tried to end this mindset by becoming more proactive in trying to prevent financial crises. Though well-intentioned, this new approach has arguably led to Fed policy itself becoming a source of systemic risk... Markets are likely headed for a difficult period as the FOMC tries to gradually wean investors off of its liquidity addiction. It is too late for the FOMC to do much other than to try to limit the damage.... The bottom line could simply be that QE means ‘risk-on’, while ending QE means ‘risk-off’."

It would appear there is only so much the Greek people will stand for. With a fragile coalition increasingly tilting to a more euro-skeptic (give us more money or else) perspective, the cleaning ladies of Greece have exploded onto the streets with great vengeance and furious rebukes at the riot police. The reason for this chaos - they were asked to clean up this mess in the finance ministry...

As the chart below shows, there’s much the Fed doesn’t understand, while at the same time showing that QE may have little purpose beyond providing a massive gift to wealthy traders and investors. With regard the question of where a dollar of QE goes, the answer is “not far.” Outside of pushing up asset prices and encouraging an occasional luxury purchase, it doesn’t seem to escape the financial sector. Liquidity that might otherwise be offered by private institutions is instead provided by the Fed, and – as Phil Collins might put it – that’s all.