Archive - Jun 4, 2014 - Story

"There is a debt problem in America..." warns Lynette Khalfani-Coz (askthemoneycoach.com) in this brief CNBC interview, expanding in the huge debt loads from mortgaging cars to student debt that Americans soak up every day in ever greater amounts. And then Steve Liesman rolls in "debt is always pointed out as a negative thing, when in fact debt is the great bridge between working hard and playing hard in this country." Then Liesman really hangs himself, "this country has been built on consumer debt," he proudly states (as if it was some badge of honor) adding carefully that "too much of it is negative thing." - well Mr Liesman... one look at the current debt load might suggest that American consumers built that 'bridge to playing-hard' just a little too far. As Khalfani-Cox admirably retorts, "excessive debt levels are simply unsustainable... It is not the job of the consumer to play the role of financial hercules... why should we have to prop up the US economy?"

It’s commencement speech season again, when, as Bloomberg notes, lots of important people say lots of wise things to freshly minted graduates. While Michael Burry's "Brutal Hangover Is Inevitable" speech is among the best ever, this year has seen plenty of witty, inspiring speeches from the likes of President Obama, Steve Ballmer, Sean Combs, and Sarah Palin; but only Bloomberg has the one commencement speech you absolutely can’t miss: an epic supercut weaving all of 2014’s best speeches into one...

QUESTION (via interpreter): Mr President, it is very convenient that you are meeting with Mr Obama on June 6. Perhaps, it would be worse if you were meeting with Hillary Clinton. Only a few days ago, she said that what Russia is doing in Eastern Europe resembles what Hitler was doing in the 1930s.

VLADIMIR PUTIN: It’s better not to argue with women. But Ms Clinton has never been too graceful in her statements. Still, we always met afterwards and had cordial conversations at various international events. I think even in this case we could reach an agreement. When people push boundaries too far, it’s not because they are strong but because they are weak. But maybe weakness is not the worst quality for a woman.

The governments and central banks of the world are engaged in a futile effort to stimulate economic recovery through an expansion of fiat money credit. They will fail due to their ignorance or purposeful blindness to Say’s Law that tells us that money is the agent for exchanging goods that must already exist. New fiat money cannot conjure goods out of thin air, the way central banks conjure money out of thin air. This violation of Say’s Law is reflected in loan losses, which cannot be prevented by any array of regulation or higher capital requirements. In fact rather than stimulate the economy to greater output, bank credit expansion causes capital destruction and a lower standard of living in the future than would have been the case otherwise.

Amid a rising backlash and assertions of desertion, a rally in US Army Sgt. Gowe Bergdahl's Idaho hometown - celebrating his release after 5 years of 'captivity' - has been canceled. The small mountain community's city administrator, Heather Dawson said town officials called off the June 28 rally, because the town "will be unable to safely manage the number of people expected," but residents of Hailey say they will support Bergdahl either way when he returns.

Shitty macro data, check; VIX up, check; Bond yields flat to lower, check; Oil down, check; New Record Highs in the S&P 500 - of course. AAPL was up again as we suspect the world of levered momo players are greatly rotating back into this old hedge fund hotel once again (and lifting the indices with them). Trannies closed red for the 2nd day in a row (first time in 3 weeks). Once again the opening dip was BTFATH back up on no volume thanks to USDJPY's ignition and once Europe closed, stocks went sideways. Copper was clubbed on warehousing concerns. With Draghi about to unveil his holy grail tomorrow, the EUR was flat but protection in volatility was well bid in FX and equity markets. Oil prices (growth?) tumbled after chatter of Ukraine-Russia talks. Gold and silver closed flat as did Treasuries - after catching up to equities from last week. Credit markets faded despite the equity exuberance today. It seems simply that no one is willing to sell anything ahead of tomorrow's grand unveiling (but derivatives protection - away from the simple gaze of the mainstream media - is very active).

Whether or not Obama made a huge political gaffe by secretly arranging the Qatar-mediated exchange of Bowe Bergdahl, who some 16,000 Americans have petitioned should be court-martialed for walking away from his post in 2009, for 5 Taliban leaders remains to be seen. To be sure republicans have jumped on the blunder and especially the hawks within the GOP are now "tag-teaming" the issues of Benghazi and Bergdahl with the intent of painting will Obama "as an appeaser, and a negotiator-with-terrorists" as The Nation reports. In any case, if Obama was hoping to use the Bergdahl exchange as a marker of successful foreign policy, he is suddenly caught flat-footed. What won't help the president's case of promptly sweeping this latest scandal under the rug, is a clip such as this one, released earlier today by the Taliban showing the handover of the prisoner of war to US forces.

The problem in representative democracy is that every instance of waste, graft, fraud and monopolistic racket is somebody's fat paycheck or government contract. Promising good governance guarantees a losing campaign for public office. To avoid the political pain that would result from trimming waste/fraud/ rackets, the state prints money to keep the swag flowing. Since the state can't create real wealth, it prints claims on wealth and passes off the paper as "money." The only thing that is infinite about the state is the hubris of those at the controls and the narrow self-interest of those at its capacious feeding trough.

While the administration unabashedly argued that they would not hand out taxpayer cash subsidies to anyone who didn't verify income on... it seems once again, they lied. 9 months later and AP reports that 2 million of the Obamacare sign-ups have data discrepancies that could jeopardize coverage for some, a government document shows. Direct from the HHS itself, AP adds that several congressional committees are actively investigating the discrepancies, most of which involve important details on income, citizenship and immigration status. The farce is complete as no resolution looks likely anytime soon - "Current system access and functionality...limits the ability to resolve outstanding inconsistencies." Of course, this is the first that Obama would have heard about it (from AP) and a probe of this SNAFU will begin immediately...

The Beige Book was a slightly less boringly beige report than normal as all 12 regions say growth was "modest or moderate" - up from 8 of 12 in April...

• *FED SAYS NEW VEHICLE SALES `WERE GENERALLY DESCRIBED AS ROBUST'
• *FED SAYS `OVERALL LENDING ACTIVITY INCREASED THROUGHOUT' U.S.
• *FED SAYS `PRICE PRESSURES WERE SAID TO BE CONTAINED'

Weather remains an issue with 35 mentions (119 in Feb and 103 in April) but May was the month of exuberant car sales with 68 mentions of the growth and optimism.

While stocks make higher highs and investors shrug at recent housing data weakness (because, well it must be the weather, right?), it appears there is one rather important factor that every one missing... Unless houses are now being made of stock certificates, Lumber prices have fallen for the last 21 days and stand at 10-month lows... suggesting real demand for the most basic building material in America is non-existent.

If the Fed is looking for definitive proof of bubble euphoria it should look no further than the CLO market: according to Bloomberg, so far in 2014, more than $46 billion of collateralized loan obligations have been raised, after $82 billion were sold in all of 2013. As a result of this epic dash for repackaged trash, JPMorgan boosted its annual forecast for CLO issuance from $70 billion to as much as $100 billion, which means 2014 may end up as the biggest year on record. We assume it is with great irony that Bloomberg summarizes: "The business of bundling junk-rated corporate loans into top-rated securities is booming like never before after the implementation of regulation aimed at making the financial system safer."

Crude oil prices dropped after earlier macro data but fell more aggressively around 1130ET. Desks are scrambling for reasons for the heavy volume selling pressure though some have noted that suggestions by Ukraine's newly elected president will meet with Putin were responsible for some 'war premium' being lifted. WTI and Brent both fell at the same time... The selling appears orderly - not machines-gone-wild...

While US equity implied volatility has been flat to slightly higher in the last week (as stocks have soared), FX volatility has remained near record lows... until today. Ahead of Draghi's big day tomorrow, EURUSD implied volatility has spiked from around 5 to over 17 - its highest since Dec 2011 - as investor anxiety over Draghi disappointing mixes with a record high short position in EUR FX Futures... it seems more than a few are concerned that Draghi's promise is more hope than reality.

It seems like it was only yesterday when the US, under the guise of a fabricated WMD threat, was invading Iraq to liberate its oil deposits. Fast forward to this week, when as Reuters reports, the US will deliver the first of 36 F-16 fighter jets to Iraq in what Baghdad's envoy to the United States called a "new chapter" in his country's ability to defend its vast borders with Iran and other neighbors. Which merely shows that since the US has "sanctioned" virtually every other potential customer of US weapons, it now has no choice but to invoice defense machinery deliveries (and boost factory orders and GDP) to former enemies. It also means that in several years, when Iraq reverts to a posture that is unfriendly to the US, and when the US shale boom is long gone and foreign sources of petroleum are once again all the rage, the US will have to fight its own fighter jets in the name of yet another war of democratic liberation and emancipation.