Archive - Sep 9, 2014 - Story

While the Japanification of markets has been a much-discussed topic in recent years, the two nations share another disturbing trend. In 2012, the land of the rising sun saw sales of adult diapers exceed those of baby diapers... and as the following chart from The Wall Street Journal shows, that trend is rapidly occurring in the land of the free...

Last week, Adam Hartung qualified for the "Mark Twain Award" if there was such a thing. In his article, "Obama Outperforms Reagan On Jobs, Growth & Investing," Adam goes to some length to try and show that unemployment rate, the S&P 500 and economic growth are currently better under the current administration than they were during the Reagan administration. Unfortunately, that is not the case. When considering that President Obama has been able to achieve real economic growth of just 2.04% annually despite historically low levels of inflation and interest rates combined with massive government interventions and balance sheet expansions; it makes his overall performance even more disappointing.

The Ebola outbreak in West Africa has now killed 2,288 people (with 4,269 cases) according to the World Health Organization, but is accelerating dramatically. In a rather stunning admission, WHO warns, conventional means of controlling the outbreak are not working as the last 3 weeks have seen the number of cases and deaths double.

Virtually every country in the world spends more money than they collect in taxes, but no group of countries has done a better job at this than those that formed the Euro-zone. This collective group has so much debt, that a recent study by the BIS concluded it would take 20 consecutive years of surpluses to simply bring debt loads back to levels previously reached prior to the current crisis. Considering that this has never happened before, we have little confidence that this type of spending constraint can be accepted and implemented by any of the respective governments. Every market has a release valve, and for Europe it will be the bond market. The beginning of the end, so to speak, really starts when social unrest reaches a new level. It’s at that point confidence rapidly declines and so too will the European bond market.

It all started in Stafford, Virginia in 1782, when Thomas Jefferson documented the first gold discovery himself. Since then, Americans have been searching for gold far and wide. The California Gold Rush brought hundreds of thousands of people to the West in search of new found wealth. Years later, many more ventured into Alaska’s wilderness to hit it rich. Even today, there is a modern gold rush in Nevada, where the five biggest gold mines (by contained oz) are located.  While it is true that there have been some hiccups along the way, such as Roosevelt’s confiscation of gold in 1933, it is unlikely that America’s fixation on gold will end any time soon.

First, Europe infamously shifted to a NIRP and now Japan has begun NIRP monetization. As WSJ reports, Tuesday marked another milestone in the topsy-turvy world of monetary easing in Japan: The Bank of Japan bought short-term Japanese government debt at a negative yield for the first time. In the understatement of the decade, one Japanese bank strategist noted, "The BOJ probably didn't expect this would happen, and T-bill rates staying negative should be a cause of concern for them." The BoJ's decision to scoop up these negative-yielding bills appears to confirm they will meet the QQE-buying demands no matter what the cost (to the Japanese people). The bottom line, the Bank of Japan is now implicitly issuing debt to the Japanese Treasury.

In a report that was just released entitled "Changes in U.S. Family Finances from 2010 to 2013: Evidence from the Survey of Consumer Finances", the Federal Reserve revealed that small business ownership in America "fell substantially" between 2010 and 2013.  Even in the midst of this so-called "economic recovery", small business ownership in America has now fallen to an all-time low.

Adult obesity rates remained high overall, increased in six states (Alaska, Delaware, Idaho, New Jersey, Tennessee and Wyoming) in the past year, and did not decrease in any. According to a new report, despite the plunge in McDonalds' Sales, rates of obesity now exceed 35% for the first time in two states, are at or above 30% in 20 states and are not below 21% in any. Mississippi and West Virginia tied for having the highest adult obesity rate in the United States at 35.1%, while Colorado had the lowest at 21.3%. Nine out of the 10 states with the highest obesity rates are in the South.

If this was the 90s, the correct answer with 99.9% certainty, would have been unequivocally the United States. However, perhaps as a testament to how the times have changed, not to mention the geopolitics and the dominant global superpowers, the answer this time is not the US but instead China. And the country where according to the WSJ, China has deployed some 700 soldiers as part of a United Nations "peacekeeping" force, is South Sudan where the Chinese troops will help guard the country's embattled oil fields and protect Chinese workers and installations, a spokesman for the African nation's president said Tuesday.

...more Italian, Spanish, and Greek citizens believe their country is heading in the wrong direction than Ukrainians!!!

The White House says President Barack Obama has told congressional leaders he has the authority he needs to take the action against the Islamic State militants that he will outline Wednesday night, according to AP. Following the meeting, the White House said Obama still welcomes action by Congress that would "aid the overall effort" and demonstrate to the world that the United States is united in defeating the threat from the Islamic State. So that's that then... does he also have 'authority' to fund the $5bn (or more) he needs for this crusade?

We have now done the math and compiled the Q2 earnings for the S&P 500 and we can indeed confirm that (at least in the second quarter) the buyback part is not only over but has ended with a thud, with the total notional amount of buybacks completed in Q2 plunging by 27% in Q2 to "only" $117 billion - the lowest since Q1 of 2013!

If you were raised in a religious household, or were sent to a Catholic school, you have heard of the seven deadly sins. These transgressions -- wrath, greed, sloth, pride, lust, envy and gluttony -- are human tendencies that, if not overcome, can lead to other sins and a path straight to the netherworld. In the investing world, these same seven deadly sins apply. These "behaviors," just like in life, lead to poor investing outcomes. Therefore, to be a better investor, we must recognize these "moral transgressions" and learn how to overcome them.

In a few moments, the up and coming "bond king challenger", Jeffrey Gundlach will hold one of his signature free to all webcasts, this time focusing on what Gundlach calls the "Fixed Income Playbook." Will he agree with David Tepper that the bond bubble is now bursting, or, on the contrary, side with JPM and its estimation that there is $5 trillion in excess liquidity which will inevitably find its way into the bond market and send yields to even lower record lows, find out in minutes.

With Bono's words still hanging in the air, the market's response to Apple's unveiling is simple: "we still haven't found what we're looking for." Some argue the weakness is AAPL-related, others point to AUDJPY fun-durr-mentals, but the bottom-line is the Fed hinted at more hawkishness, short-term bonds are weakening (long-end rally with notable flattening), VIX is rising and inverted (to 1-mo highs), and HY credit is getting ugly once again as it seems stocks are indeed catching on to the fact that the Fed will really be removing the punchbowl... S&P fell to 3-week lows as AUD collapsed (but EUR strength sent the USD lower on the day) and lost the crucial 2,000 level by the most since it was first breached.