Archive - 2014 - Story

When it comes to the topic of China's epic credit bubble, we have beaten that particular dead horse again and again and again and, most notably, again. However, since in China the concept of independent bank is non-existent, and as all major financial institutions are implicitly government backed, by the time the "big" bubble bursts, it will be time to hunker down in bunkers and pray (why? Because while the Fed creates $1 trillion in reserves each year, and dropping post taper, China is responsible for $3.6 trillion in loan creation annually  - yank that and it's game over for a world in which "growth" is not more than debt creation). But just because the big banks can continue to ignore reality with the backing of the fastest marginally growing economy in the world (inasmuch as building empty cities can be considered growth), the same luxury is not afforded to China's smaller lender, such as its peer-to-peer industry. That particular bubble seems to have just popped: "The main reasons are the intense competition in the P2P industry, the liquidity squeeze at the end of the year and a loss of faith by investors," said Xu Hongwei, chief executive of Online Lending House. He estimated that 80 or 90 per cent of the country’s P2P companies might go bust. Oops.

US Treasury yields broke down sharply Friday, confirming a near-term, potentially medium-term, turn in trend; and, as BofAML's Macneil Curry notes, this Treasury turn should prove to be a headwind for select USD pairs, (although BofAML remains bigger picture USD bulls); particularly USDJPY. However, the weakness in the Canadian USD - which was the only currency not to rally against the greenback on Friday - suggests the downtrend in the Loonie has significant legs. Precious metals - most notably silver - could also benefit from the Treasury trend change.

In the last 3 years, the volume of options quotes (not trades) in the first few seconds of the US equity market's open has exploded. From around 1 million quotes in the first second of the day in 2011, Nanex' detailed animation shows that volumes are now reaching 4 million quotes. Does this quote spam look like it provides liquidity? Wondering why the opening price action in US equity markets has become incredulous in recent months - with vertical dump-and-pumps - wonder no more... 'efficient' markets indeed...

Following Japan's proclamations that it will take over another 280 'disputed ownership' islands, it appears the increasingly dis-approved of Prime Minister Shinzo Abe's path of militarism and provocation is working. As China Daily Mail reports, citing experts, China intends to take back Zhongye Island - 'illegally' occupied by the Philippines, according to the Chinese. The Chinese navy has drawn a detailed combat plan to seize the island and the battle will be restricted within the South China Sea. Philippines military is building up on the island and the Chinese see as 'intolerable' the "arrogance" relying on US support. It seems the Obama administration may have to 'not take sides' in another fight soon.

... We have created an apparently wonderful economic model that seems to provide us with so many benefits. When you consider the incredible feats of technology and the global consumerist lifestyle we enjoy it is easy to marvel at what has been achieved. Of course what may be less obvious is the dark side of the growth economic model which is deeply inequitable, restricting its benefits to the relative elite in the western world and trapping the rest of the world in poverty. Most dangerous of all is the unsustainability of the model and where it is taking us in the future. There is now a perfect storm gathering that includes economic indebtedness, resource shortages, population pressures, and climate change that is guaranteed to derail civilisation. Despite this the political and economic mainstream are largely in denial about what is happening– like the hapless engineer and politician in the story everyone agrees that we must restart the ‘growth economy’ and continue to progress down the business as usual pathway. Very few people are taking the long term view and watching the direction towards doom that this pathway leads us. Too invested in the benefits of our current lifestyle, no one wants to hear the counsel of the philosopher who sees the disaster that looms ahead.

With tensions raging in Asia (and the Middle East) and the anniversary of the start of World War I drawing closer, we thought it contextually useful to look at World War II from a different (and more broad) perspective. This History Channel documentary shows - using an all-seeing CGI eye - a satellite view of the conflicts, allowing you to experience it in a way that places key events and tipping points in a global perspective. By re-creating groundbreaking moments that could never have been captured on camera and by illustrating the importance of simultaneity and the hidden effects of crucial incidents, the war's monumental moments in never- before-seen context. And with new information brought to the forefront, you'll better understand how a nation ranked 19th in the world's militaries in 1939 emerged six years later as the planet's only atomic superpower.

As we embark on a new year, it's important to keep the really big elements of our global predicament squarely in mind. At the heart of the resource depletion story that Peak Prosperity tracks so expertly is the number of people on earth competing for those resources. The global population is more than 7 billion now and headed to 9 billion by 2050. If world population continues its exponential growth, when we will hit planetary carrying capacity limits with our key resources (or are we already exceeding them)? What are the just, humane, and rights-respecting options that are on the table for balancing the world’s population with the ability of the earth to sustain it? Population management is an inflammatory issue. It's nearly impossible to discuss without triggering heated emotions, and rare is the leader who's willing to raise it. And by going unaddressed globally, the risk of problems created by overpopluation grow unchecked. War, poverty, starvation, disease, inequality...the list goes on. Simply put - We are eating into the capital to sustain the growing population.

When work is punished and the only policy tools left for a nation of must-sustain-the-credit-is-growth-Keynesian-state-wreck-status-quo believers, there can be only one outcome in the war on poverty in America... "promise zone" or no "promise zone"...

If you’ve ever sought advice from a financial advisor, you probably asked the question: “How much of my portfolio should I hold in stocks?” Somewhere in the answer, you were probably offered long-term return estimates. These estimates probably placed stock returns at approximately inflation plus 5 or 6%. But what if standard estimates are too optimistic, as they were in the 1990s when advisors typically predicted double-digit long-term returns? Shouldn’t this change your investment allocations? We’ll argue that the usual estimates are overoptimistic, and that investment allocations should be based on more realistic expectations. Worse still, the discrepancy has reached enormous proportions.

With over 1,000 new merchants adopting Bitcoin every week, it is perhaps not surprising that, as NY Post reports, the first Bitcoin ATM is about to debut in New York City. Following success in Canada and Europe, Brooklyn native Willard Ling, 30, is set to introduce the first bitcoin ATM to New York City at the East Village bubble tea shop 'Just Sweet'. State regulators with the Department of Financial Services are expected to hold hearings later this month to discuss how the digital currency should be regulated; and until then, Ling’s bitcoin ATM will sit in his apartment.

When it comes to socialism, the world's premier promoter of egalite - France's Francois Hollande - is very aware that in a socialist utopia, no property is private. Hence everything can be shared, such as actress Julie Gayet with whom it was revealed last week he had an affair. The problem is that the First Lady, er, Girlfriend of France, Valerie Trierweiler, 48, did not share her boyfriend's Marxist view. And, as Reuters reports, when Trierweiler found out about an affair between Francois Hollande and the aforementioned Julie Gayet, 41, she was hospitalized on Sunday morning "because of exhaustion." But before readers cry for Madame Trierweiler, recall that while Hollande is a fervent fan of socialism, the former first girlfriend some far more interested in being more equal than others. Per the Mail: "She currently has five staff working for her at her office as well as numerous other taxpayer-funded perks, including homes across France, private jets and limousines. As anger at the scandal grew, politicians suggested Miss Trierweiler’s position was already untenable."

As we reported several days ago, for the first time in history the majority of members of Congress currently have a net worth over $1,000,000. Of course, this also means that just under half are still aspiring to get in Wall Street's "preferred politician" rolodex, and says nothing about any one politico's individual's assets. So for all those curious how much their congressional representative is worth, the following comprehensive summary infographic from Vizual Statistix has the answers.

Gross: The age of getting rich quickly is over as is (most likely) the age of getting rich slowly.

— PIMCO (@PIMCO) January 12, 2014

By now most are aware that the primary reason there was EPS growth last year was the relentless buying back of their own stock by corporate treasurers, accounting for 75% of the increase in S&P500 earnings per share even as revenues stagnated for the second year in a row and actual earnings growth was comatose at best. At $500 billion in net stock buybacks in 2013, this was an immense amount of bidding power, equal to half of the Fed's entire annual liquidity injection. And while EPS was artificially boosted by an allocation of capital that most would say is the least efficient in terms of future growth (remember when companies spent on capital expenditures to fund long-term growth, not satisfy activist shareholders?) the only good thing that could be said about the second highest annual corporate buyback in history was that companies still saw their stocks as cheap: after all, not even the most aggressive of CFOs would greenlight a massive buyback campaign if they expected their stock to plunge. That is no longer the case.

It is a slow Saturday with virtually no financial, economic or any other news, so what better way to spend it than looking at the coolest non-finance related images of the past year. Without further ado, here they are, courtesy of Wired: the best scientific visualizations of 2013.