Archive - 2014 - Story

It has been commonplace to speak of central bank independence - as if it were both a reality and a necessity. Discussions of the Fed invariably refer to legislated independence and often to the famous 1951 Accord that apparently settled the matter. [1] While everyone recognizes the Congressionally-imposed dual mandate, the Fed has substantial discretion in its interpretation of the vague call for high employment and low inflation. It is, then, perhaps a good time to reexamine the thinking behind central bank independence. There are several related issues.

• First, can a central bank really be independent? In what sense? Political? Operational? Policy formation?
  
• Second, should a central bank be independent? In a democracy should monetary policy—purportedly as important as or even more important than fiscal policy—be unaccountable? Why?
• Finally, what are the potential problems faced if a central bank is not independent? Inflation? Insolvency?

Money well-spent, we are sure some would suggest; but when the National Institute of Health spends $224,863 to test 95 "custom-fitted" condoms so every hard-working American man can choose the one that fits 'just right', we suggest the government is stretching the tax dollar a little too far. As NY Post reports, the study was prompted by concern that despite the wide-scale promotion of latex condoms to help prevent the spread of HIV, their use remains "disappointingly low," because, the government says, one-third to one-half of men complain of poor-fitting prophylactics and are less likely to use them... apparently. Of course, we assume, when questioned, all said the condom was 'too small'.

We noted on Thursday, when Alcoa reported, that "non-recurring, one-time" charges are anything but; indicating just how freely the company abuses the non-GAAP EPS definition, and how adding back charges has become ordinary course of business. But it's not just Alcoa, and as David Stockman, author The Gret Deformation, notes Wall Street’s institutionalized fiddle of GAAP earnings made P/E multiples appear far lower than they actually are, and thereby helps perpetuate the myth that the market is "cheap."

There's nothing like a left-cross from a 3-month-old to remind a 'leader' of his responsibility for the future...

#Bitcoin's first full day on @overstock.com was a huge success: 840 orders, $130,000 in sales. Almost all new customers. #stunned

— Patrick M. Byrne (@OverstockCEO) January 10, 2014

This is potentially big news (and has driven the price back above $1000) and any retail CEO worth their salt will likely begin to look into Bitcoin adoption.

Now that even Bridgewater has joined the Twitter craze and is using user-generated content for real-time economic modelling, and who knows what else, the scramble to determine who has the most market-moving, and actionable, Twitter stream is on. Because with HFT algos having camped out at all the usual newswire sources: Bloomberg, Reuters, Dow Jones, etc. the scramble to find a "content edge" for market moving information has never been higher. However, that opens up a far trickier question: whose information on the fastest growing social network, one which many say may surpass Bloomberg in terms of news propagation and functionality, is credible and by implication: whose is not? Indeed, that is the $64K question. Luckily, there is an algo for that.

For the current administration, now with a fresh developer to fix all the problems (with the website), the reality of public perception over Obamacare has gone from worst to worster-er this week. As Gallup polls show, nearly half of Americans say the Affordable Care Act will make the healthcare situation in the U.S. worse in the long run. When asked more broadly if they approve or disapprove of Obamacare, Americans come down on the disapprove side by 54% to 38% - a new record low for 'approval'.

It's not just Bank of America that is 'worried' about the health of its junior employees. As Bloomberg BusinessWeek reports, Americans eat at their desks, work longer days, and retire later than their counterparts in most other parts of the world (especially France). But, while the likes of Oprah offer holistic solutions to harness yopur stress, and bosses insist that you take your weekends off (or else), the workload itself is not reduced. Do not fear though as Senator Glenn Grotham is pressing to undo a "goofy" law requiring employers to give workers a day off - "all sorts of people want to work 7 days-a-week," he noted... indeed they do Senator.

S&P 500 valuation is lofty by almost any measure, both for the aggregate market (15.9x) as well as the median stock (16.8x). We believe S&P 500 trades close to fair value and the forward path will depend on profit growth rather than P/E expansion. However, many clients argue that the P/E multiple will continue to rise in 2014 with 17x or 18x often cited, with some investors arguing for 20x. We explore valuation using various approaches. We conclude that further P/E expansion will be difficult to achieve. Of course, it is possible. It is just not probable based on history.

Following the suicide bombings and the discovery of numerous explosive devices near Sochi - the site of the Winter Olympics - the US state department warned Americans of the potential for terrorism. As Reuters reports, in a 'travel warning' that the Olympics presented "an attractive target for terrorists," the department urged Americans to be vigilant about personal security at the Games, and flagged the possibility of petty crime, inadequate medical care and hotel shortages. Somewhat oddly, the state department also used the warning to highlight the fact that a Russian law, much criticized by rights groups, that would make it a crime to publicly promote the equality of gay, lesbian, bisexual and transgender people.

Thought the incredibly unpopular Obamacare health plan (the most epic disaster story was the woman who was touted as a success and then later kicked off her plan) had put most of its problems behind it? Think again. Yesterday, after the stock market close, health insurer Humana warned that the “risk mix” of those who have signed up for the program will be “more adverse than previously expected.” In plain english what this means is that only old and sick people are signing up, while younger generations with piles of student debt, a couch in their parents’ basements and no jobs decide to ride things out uninsured.

The fact that economic ignorance is widespread is really a big problem in our view. Unfortunately even what is broadly considered the economic mainstream thought is riddled with stuff that we think just doesn't represent good economics. Partly it is actually furthered by statist propaganda and obfuscation. For instance, the average citizen is not supposed to question the centrally planned monetary system, and neither is he supposed to actually understand how it works. Another glaring example is the still widespread idea that socialism – or rather, communism (i.e., full-scale socialism as opposed to its milder 'democratic' version) – would be "the best possible system of social and economic organization if only it were implemented correctly", or the variant "...if only human nature were different and we were morally more advanced than we actually are". The main problem with this train of thought is that it is actually completely wrong...

We have asked (and answered) this question a number of times in recent weeks. Ignoring for a moment the bubble-trajectory, hope-expectations, and investor sentiment, as ex-Morgan Stanley-ite Gerard Minack notes, equity markets in 2013 appeared to completely ignore macro fundamentals. For 2014, as we warned here, the dream of moar multiple expansion may be over. With the Fed desperate to convince the world that strong language is just as effective as 100s of billions of dollars in liquidity provision, we suspect the 'wedge' between hope and reality will compress (significantly)...

Perhaps the only good news in today's job report is that it is now in the past, because absent from some inexplicably respected so-called pundits doing the most idiotic thing imaginable, and saying to just ignore this report, there was absolutely nothing good one could say about the lowest monthly job gain since January 2011 (driven by temp and retail workers) at least until it is revised several times over the next 3 years when we ultimately learn that today's noisy jobs print was really a gain of 500K jobs. Of course by then, there will be far bigger problem to deal with. However, while December in the past, the future still remains. And it is here that we have some good and bad news. According to the just released Occupation Outlook Quarterly (OOQ) looking at the period from 2012 to 2022 released by the BLS, in the future the US will be in a significant need of jobs, which is good for all those worried that the economy is grinding to a halt, or those demoralized from not having a job for months on end and unsure if this will ever change. That's the good news. The bad news is that as in the case of today, the vast majority of future jobs will pay absolutely miserable salaries.

The following is a firsthand story of how and why a former US citizen - who kindly shared this information on condition of anonymity - decided to renounce his US citizenship