Archive - Aug 2014 - Story

Empires are not the result of conscious thought; they happen when a group is large enough and powerful enough to impose itself on others. But empires are expensive. They are typically financed by theft and forced tribute. The imperial power conquers... steals... and then requires that its subjects pay “taxes” so that it can protect them. The US never got the hang of it. It conquers. But it loses money on each conquest. How does it sustain itself? With debt.

Just before he headed off to Martha's Vineyard for another vacation, President Obama explained the situation in Iraq (standing in front of the impressive Presidential helicopter) careful to use the phrase 'men, women, and children' numerous times. He called on Iraqis to unite against militants (subtley suggesting the reason the Iraq military ran away was because of a dis-united government). Crucially, he noted Iraq's Islamic State "problem will not be solved in weeks."

Up until this point Angela Merkel, and German media in general, had been staunchly on the side of the west when it comes to dealing with Russia, Putin and realpolitik in broader terms. That changed dramatically today when Gabor Steingart, the chief editor of Handelsblatt, Germany's leading economic newspaper, came out with a stunning op-ed, in German, English and Russian, titled simply that "The West on the wrong path" in which the editor comes out very vocally against the autopilot mode German media has been on for the past several months and calls for an end to a strategy of sanctions and Russian confrontation that ultimately "harms German interests" and is a dead end.

When people ask for solutions to the collapse of America, often they are looking for a predetermined top-down magic bullet response. There is no such thing, nor will there ever be. There is no scenario in which we will escape unscathed. There is no cartoon-land happy ending at the finale of this story. The “solution,” as it were, is ultimately something that many do not want to hear about; namely, hard work, sacrifice and a willingness to put everything on the line for the future. Our only advantage is that we still have some time, and any time is better than no time.

Presented with no comment...

The failure to understand money is shared by all nations and transcends politics and parties. The destructive monetary expansion undertaken during the Democratic administration of Barack Obama by then Federal Reserve chairman Ben Bernanke began in a Republican administration under Bernanke’s predecessor, Alan Greenspan. Republican Richard Nixon’s historic ending of the gold standard was a response to forces set in motion by the weak dollar policy of Democrat Lyndon Johnson. For more than 40 years, one policy mistake has followed the next.  Each one has made things worse. What they don’t understand is that money does not “create” economic activity.

The late, great critic of the American Imperium, Chalmers Johnson, popularized the salient concept of “blowback”. That is, the notion that if you bomb, drone, invade, desecrate and slaughter - collaterally or otherwise - a people and their lands, they might find ways to return the favor.

We are told endlessly, by the PhDs in control, how 'efficient' stock markets are, always capable of discounting all the possibilities that the world faces. If that is the case, then what is the 'market' saying about costs that are being paid for Russian sanctions? It seems the more the US presses, the weaker European stocks go... as we noted previously, the "Stop Putin" coalition may soon crack.

"The U.S. Administration in particular has passionately thrown off the mantle of leadership and replaced it with a combination of naïve denial and incoherent mumbling... if the world perceives a superpower as strong, reliable and willing to take action to back its promises, that perception can and does preserve stability, and the opposite can encourage mischief and danger. The world is currently experiencing a surfeit of the latter. There is no way to tell how deep and consequential the danger, or the surprising ways and places in which this interconnected problem will be resolved. The range of potential outcomes, however, is negative to very bad."

With credit markets beginning to creak, market internals flailing, and numerous sectors and individual stocks in a state of correction or bear market, it appears Marc Faber's calls for a big correction in stocks is more right than wrong but the algo-driven exuberance in indices maintains the illusion a little longer (even as the number of leading stocks drops). However, with redemptions increasing in credit, and costs of funding rising, perhaps Faber's insights in the following interview with a radiant Trish Regan are about to be realized. "By printing money, [The Fed] has delayed the cleaning process," as mal-invested capital (and self-referential buybacks) have sustained (and even encouraged) the worst quality companies. As corporate defaults pick up (and The Fed's free money dries up), perhaps that cleaning process will be allowed into the free-market producing "the big sell-off" Faber sees in the Fall.

It appears - just as CDC Director Frieden feared - that an escalation of the Ebola virus in Nigeria would mean major risks. While it is too soon for results, City News is reporting that Brampton Civic hospital is taking precautionary measures after a patient who recently travelled to Canada from Nigeria came down with a fever and other flu-like symptoms. This comes on top of the fact, as Time reports, that the CDC has received dozens of calls from all over the United States about people that had gotten sick after traveling to Africa.

Drug addiction ravages the health of the body and mind, but it can also be ruinous to the wallet. Here is a look at the financial costs associated with drug addiction and treatment, which for most people includes counseling.

Last week's first ever U.S.-Africa summit was a perfect mix of dinner-party diplomacy with some of the world’s most violent and homophobic dictators. As the Daily Mail points out, President Obama had no problem smiling and hobnobbing with a cornucopia of murders and human rights abusers. Just remember this the next time a politician tries to get you enraged about a human rights abuse somewhere. There is always an ulterior motive, because without question, the U.S. only cares about human rights when it is geopolitically or economically advantageous to do so.

Obviously, this weekend's reading list is focused on what to do now.  Is this just another "dip" that investors should buy into? OR, is this the beginning of the long overdue intermediate term correction or a "mean reverting" process?

NATO threats to Russia - storm in a teacup. ISIS and Iraq airstrikes - transitory. Israel-Hamas un-cease-fire - fuggetabaadit. This was the week to buy stocks... the riskiest, most overvalued growth-oriented stocks. GDP downgrades - no sweat. Russell 2000 surges to its best week in the last 8 (up 1.5%) while Trannies closed lower for the 2nd week in a row - the first time in 6 months. The Russell rallied perfectly up to its 50-day moving-average. S&P, Dow, and Nasdaq scrambled back to around unch on the week on the back of a tweet and a 4-day-old piece of news... bonds and FX did not. Gold closed the week up 1.3%, back over $1,310 (but silver closed down 1.8%). Oil ended modestly lower (as did copper). Treasury yields saw safe-haven buying and fell 5-7bps on the week (but well off the week's lows -15bps). "Most shorted" stocks rose 1.3% today - best in almost 4 weeks (and biggest weekly squeeze in 2 months).