Archive - Jul 2014 - Story

Remember when everyone ignored this story about Espirito Santo in May: "Portugal's Largest Bank "In Serious Financial Condition" Auditor Warns." Good times. Alas, one can only kick the can of Europe's banking sector insolvency so far before everything blows up in everyone''s face all over again and Draghi has to come out of his crypt and spook everyone that he will do "whatever it takes" to ignore reality and just pretend stuff is fixed which carries Europe over for a few more months before the whole charade has to be repeated.

Europe is collapsing, contagion is spreading, US firms are admitting "it's not the weather"... but initial jobless claims news is great so BFTD? After 5 weeks of misses, initial claims beat and fell to 304k - just shy of the record low for the cycle. Continuing claims rose though, missing expectations for the 2nd week in a row - this is the first 2-weeks-in-a-row rise since Feb.

• Espirito Santo Financial Suspends Shares, Bonds on ESI Exposure (BBG)
• Europe Stocks Drop for Fifth Day as Espirito Santo Sinks (BBG)
• Espirito Santo Creditors Doubt Containment on Missed Payment (BBG)
• French Stocks Seen Extending Losses on Economy Concern (BBG)
• Stocks Slide With Portugal Bonds as Yen Gains; Oil Drops (BBG)
• U.S. Probes Hacking of Government Computers at Personnel Agency (WSJ)... finds terabytes of porn 
• It's Congress' fault: Obama rejects criticism over border crisis (Reuters)
• Israel Mobilizes 20,000 Troops for Possible Gaza Invasion (BBG)
• Chinese hackers pursue key data on U.S. workers (NYT)
• Donetsk Primed for Siege as Ukraine Army Hems In Rebels (BBG)

Just 2 days ago we highlighted the best example of the exuberance awash the markets currently - CYNK Technology Corp, the social media development company that had a market capitalization in excess of $1 billion, which according to official filings,  had one employee, no website, no revenue, no product, and no assets. Fast forward 2 days - and some 57,000 shares traded (about 0.02% of its total shares outstanding) at around $10 and CYNK now has a market cap approaching $3 billion (and still no revenue, no product, and no assets)... Lord Overstone said it best. “No warning can save people determined to grow suddenly rich.”

According to just released data by Murray Devine, the Median Ebitda multiple for buyouts has exploded to nosebleed levels, rising by over one full turn of EBITDA since 2013 alone, and at 11.5x in the first half of 2014 is nearly 2x higher than during the last LBO bubble peak in 2008, when the average company was taken private at a conservative 9.6x EV/EBITDA.

It’s vogue, trendy and appropriate to look to dystopian literature as a harbinger of what we’re experiencing at the hands of the government. Certainly, George Orwell’s 1984 and Animal Farm have much to say about government tyranny, corruption, and control, as does Aldous Huxley’s Brave New World and Philip K. Dick’s Minority Report. Yet there are also older, simpler, more timeless stories - folk tales and fairy tales - that speak just as powerfully to the follies and foibles in our nature as citizens and rulers alike that give rise to tyrants and dictatorships. One such tale, Hans Christian Andersen’s fable of the Emperor’s New Clothes, is a perfect paradigm of life today in the fiefdom that is the American police state, only instead of an imperial president spending money wantonly on lavish vacations, entertainment, and questionable government programs aimed at amassing greater power, Andersen presents us with a vain and thoughtless emperor, concerned only with satisfying his own needs at the expense of his people, even when it means taxing them unmercifully, bankrupting his kingdom, and harshly punishing his people for daring to challenge his edicts.

The utilization of the Chinese market as both policy tool and 'wealth' creator - as The Fed has done with the S&P 500 - remains less than the PBOC would like. It appears the Chinese prefer their 'risk' in Baccarat and real estate and don't trust those stock markets shisters... so the government is doing something about it. While American investors have to worry about high-frequency traders front-running them; in China, it's a low-frequency trade called "rat trading" where fund managers use personal accounts to buy shares cheaply, then sell them at a profit after purchases from the funds they manage have boosted their value. China’s securities regulator has decided enough is enough and has stepped up its probe into insider trading, taking on “rat traders” in an attempt to restore confidence in the country’s stock market.

With the mainstream media having moved on in the news cycle to Dow 'almost' 17,000 and the 'Border Crisis' Scandal, it seems The Islamic State (the terrorists formerly known as ISIS) have stepped up their game and come out swinging... by seizing 88 pounds of nuclear material (uranium compounds) from Mosul University. As Iraq's UN Ambassador warned, "these nuclear materials," despite the limited amounts mentioned, "can be used in manufacturing weapons of mass destruction... or in combination with other materials in its terrorist acts."

"Bye, bye, Abe" Just when you thought Japanese macro data couldn't get any worse... it does. Plumbing new depths in the "you can't print your way to prosperity" plan, Japanese Private Sector Machine Orders collapsed 19.5% month-over-month - the largest monthly drop ever (as the dragged-forward pre-tax-hike demand left a hole the size of Fukushima behind it). With Abe's disapproval ratings soaring and inflation surging, hopes for more 'bad news is good news' QQE should be quickly dismissed.

Gold has meaning to China in the same way that gold has meaning (or should have meaning) to Western investors. Not as an inherent store of value or some timeless monetary standard... but as a symbol of failed confidence in Western central bank control over market outcomes. To both investors and China, gold is an insurance policy against Western central bankers losing control of their massive monetary policy experiment. The difference is that China has the power to do something about it.

Safer, more secure, more stable? Change it did.

The total tonnage of economic malarkey being shoveled over the American public these days would make the late Dr. Joseph Goebbels (Nazi Minister of “Public Enlightenment and Propaganda”) turn green in his grave with envy. It’s a staggering phenomenon because little about it is conspiratorial; rather, it’s the consensual expression of a public that wants desperately to believe things that are untrue, and an economic leadership equally credulous, unmanned, and avid to furnish the necessary narratives that might preserve their jobs and perqs.

Having explained how well the economy is going - best in the world, apparently - President Obama is moving on to the immigration scandal. In an unexpected address from his fund-raising trip to Texas (Dallas actually - 100s of miles from the border), and on the heels of his 'executive action' demands on immigration reform, Obama will explain how it's none of his fault and unless 'the other side' give him carte blanche, it's a humanitarian crisis... think of the children (and the taxpayer funding)...

Just days after a report published by researchers at Facebook revealed that users of the social media site had been manipulated for science, The Guardian reports that DARPA - the Pentagon-run Defense Advanced Research Projects Agency - has in one way or another funded several studies recently that set out to explore that social networking site, as well as users of Twitter, Pinterest, Kickstarter and others. DARPA told the Guardian that the studies it has funded are essential to US defense interests.

The overpowering and incessant statist economic management of the American economy, as reflected in the Ex-Im extension mobilization now underway, is causing the engines of capitalist prosperity to shutdown. The main culprit, of course, is our monetary central planners in the Eccles Building. But they are only the leading edge - the exemplar that tells Washington day in and day out that without constant ministrations by agencies of the state, our capitalist economy would continuously under-preform and tumble into the ditch. So what is at stake in the Ex-Im battle is the future of market capitalism itself. If Washington lacks the capacity to say no to the shareholders of a few big US corporations that can be counted on one hand, then the statist predicate will triumph finally and for ever more.