As Warren Buffet openly states that he believes that a default on US debt will be catastrophic and that lawmakers in Congress need to get their act together and get the federal government back to work by passing the budget we might well wonder if it’s just for show or if he really believes that.
There really is very little reason why this "government shutdown" cannot continue indefinitely because almost everything is still running. 63 percent of all federal workers are still working, and 85 percent of all government activities are still being funded during this "shutdown". It turns out that the definition of "essential personnel" has expanded so much over the years that almost everyone is considered "essential" at this point. In fact, this shutdown is such a non-event that even referring to it as a "partial government shutdown" would really be overstating what is actually happening. In the end, this shutdown could turn out to be very good for America. We have a government that is wildly out of control and that desperately needs to be reigned in.
If we analyze inflation by these two metrics (purchasing power - which declines as real income stagnates and prices rise - and by exposure to real costs), we find the middle class is increasingly exposed to skyrocketing real-world prices. Pundits in the top 5% have the luxury of pontificating on the accuracy of the CPI while those protected by government subsidies and coverage have the luxury of wondering what all the fuss is about. Only those 100% exposed to the real costs experience the full fury of actual inflation.
Based on the following quotes just uttered by the Chairman...
- BERNANKE: WALL STREET HASN'T BENEFITED MORE THAN MAIN STREET
- BERNANKE SAYS FED `VERY FOCUSED' ON MAIN STREET
... Bernanke's next career as a sit-down comedian smash hit is guaranteed.
North American crude oil has been in the news on several fronts this week, including some rapid price moves and an unexpected intervention by President Obama. Despite the publication of a new report projecting a much more rapid rate of tight oil supply growth than is generally expected and the entire Buffet-Railroad-Traffic-Pipeline meme relying on increasingly exponential dreams of the Bakken et al. saving us from our excess-energy-consuming selves, Barclays questions just how realistic these forecasts are, noting "it is perhaps wise to exercise a degree of caution over longer-term shale oil forecasts... partly because of the steepness of decline rates for shale oil wells, a lot of the very big productivity gains have already been made, and finally, skepticism around some of the more ambitious projections of US shale output due to the existence of numerous logistical barriers."
Why did the U.S. government spend 2.6 million dollars to train Chinese prostitutes to drink responsibly? Why did the U.S. government spend $175,587 "to determine if cocaine makes Japanese quail engage in sexually risky behavior"? Why did the U.S. government spend nearly a million dollars on a new soccer field for detainees being held at Guantanamo Bay? This week when we saw that the IRS was about to pay out 70 million dollars in bonuses to their employees and that the U.S. government was going to be leaving 7 billion dollars worth of military equipment behind in Afghanistan, it caused us to reflect on all of the other crazy ways that the government has been wasting our money in recent years. So we decided to go back through my previous articles and put together a list. We call it "The Waste List".
If we’ve learned one thing over the years from following markets, economics, and geopolitics is this: no man can push the Wheels of History. It unfolds in its own time and no other. The waves of human emotion, of optimism and pessimism both long and short term haven’t changed. So why are the markets still going up? Why can’t people respond to warnings of the blogosphere, or warnings of collapsing economies and accounts right before their eyes? Answer: Because they can’t. It isn’t time - yet... Human emotions and behavior run in cycles of set period. Obviously humankind cannot become infinitely more optimistic forever into the future. In the same way trees don’t grow to the sky, at some point human expectation must reverse and become less optimistic, more conservative and pessimistic until it reaches an opposite extreme. And this theory has a lot going for it: if governments truly controlled stock markets, economies, nations, then why would they ever decline? No government or market would ever voluntarily get smaller, less powerful, and prosperous. And yet despite everything they can do to prevent them, markets and economies always, always DO reverse. Always.
- The revolving door continues: Mary Schapiro joins Promontory Financial (WSJ)
- First Peek at Health-Law Cost (WSJ)
- Abe warns over Japan inflation target: warns 2% inflation target may not be reached within two years (FT)
- BoJ's Kuroda tested by divided board (Reuters)
- Nanjing poultry butcher fourth person infected with H7N9 bird flu (SCMP)
- What time do top CEOs wake up? (Guardian)
- Cyprus Seeks More Time to Meet Targets in Talks With Troika (BBG)
- Investors Ignore Negativity at Their Peril (WSJ)
- Apple bows to Chinese pressure (FT)
- One can only laugh: North Korea to restart nuclear reactor in weapons bid (Reuters)
- Visa Demand Jumps (WSJ)
- Bloomberg's refutation of Stockman: yes, yes but... look over there, stocks are up! (BBG)
We have shown the endless hockey-stick-like charts of hope that are the coming margin expansion, dramatic earnings growth, and revenue increases (all juxtaposed against the reality of a labor-destroying cost-cutting and growth-disabled global economy) but perhaps nowhere is the 'hope' in the US more evident when compared to the rest of the world. Around the world, analysts and strategists are comfortable marking down expectations for British, European, Asian, and Emerging Market nations but not the good ol' USofA. We cannot help but believe that while momentum in US equity markets dominates all sense and rationality, it would appear the US will struggle to realize these 'hopeful' expectations if the rest of the world is collapsing... unless of course, Mars does indeed start importing Fords and GMs.
"Clearly, the USDA has made up its mind that Big Sugar is going to trump the American consumer," is how industry exec perceives the news that the government is considerng buying 400,000 tons of sugar, as WSJ reports, to stave off a wave of defaults by sugar processors that borrowed $862 million under a government price-support program. Since these 'loans' were given nine-months ago, sugar prices have plunged 18% - and could leave the government's price-support program with an embarrassing $80 million loss given the additional sugar-to-ethanol purchase losses. Of course, rather than pass on lower prices to a struggling consumer, the government's decision is to avoid a loss for corporations such as American Crystal Sugar Co., Amalgamated Sugar Co. and U.S. Sugar Corp., and, as Sen. Jeanne Shaheen notes "unfairly leaving consumers and businesses on the hook to foot the bill and that is unacceptable." Moar Big Gulps...
- More black smoke over Vatican: No decision on pope in second day (NBC)
- PBOC Chief Says China Should Be on ‘High Alert’ on Inflation (BBG) - just as predicted last fall
- California Seizes Guns as Owners Lose Right to Keep Arms (BBG)
- U.S. Tax Cheats Picked Off After Adviser Mails It In (BBG)
- In 2012, Samsung spent $401 million advertising its phones in the U.S. to Apple's $333 million (WSJ)
- Coca-Cola probed over mapping in China (FT) - accused of ‘illegally collecting classified information’
- Italy's Bond Sale Meets Tepid Demand (WSJ)
- U.S. Steps Up Alarm Over Cyberattacks (WSJ)
- Mugabe takes on Zimbabwe's Generation X (Reuters)
- Mars Rover Finds Conditions Once May Have Supported Life (BBG)
- Oil demand hit by China refinery outages (FT)
- Big Sugar Is Set for a Sweet Bailout (WSJ) DOA to buy 400,000 tons of sugar to stave off a wave of defaults by sugar processors
- Spectre of stagflation haunts UK (FT)
- As Republicans seek identity, conclave highlights divisions (Reuters)
- Grillo kills move to break Italy deadlock (FT)
- Abe nominates Kuroda to run BoJ (FT)
- More WMT bad news: Wal-Mart Chief Administrative Officer Mars to Leave: WSJ (BBG)
- Japan's Abe: Islands Are Indisputably Ours (WSJ) - Except for China of course
- Low-key departure as pope steps down, to enter the final phase of his life "hidden from the world" (Reuters)
- Cuts unlikely to deliver promised budget savings (Reuters)
- European Union caps bankers’ bonuses (FT)
- White House, Republicans dig in ahead of budget talks (Reuters)
- Jockeying Stalls Deal on Cuts (WSJ)
- Argentina Says It Won’t Voluntarily Comply With Bond Ruling (BBG)
- Italian president says forming new government cannot be rushed (Reuters) - or happen at all
- Central Banks Spewing Cash Must Plan Exit Timing, Rohde Says (BBG)
- China Regional Targets Cut in Sign Debt Concerns Heeded (BBG)
- RBA Says Up to 34 Central Banks Holding Australian Dollars (BBG)
Presented without any comment (see original Titan letter here), and google translated to add Babel fishing insult to an already injurious, or is that hilarious, exchange between a hard core capitalist and a socialist... perfect ignorance, admiration of Obama, trade tariff threats, oh, and don't mention the war.
Warren Buffett’s aphorism: "price is what you pay; value is what you get" has been rightly celebrated. But to be a true value investor, it helps to have values. Courtesy of near-zero interest rates and global competitive currency debauchery, it is increasingly difficult to assess the value of anything, as denominated in units of anything else. The business of investing rationally becomes problematic when market participants are pursuing maximum nominal returns without a second thought as to the real (inflation-adjusted) value of those returns. In a global deleveraging that is likely to persist for some years, the heavily indebted countries will desperately need to attract foreign capital to help service their heavy debt loads. And in order to do so, they will likely devalue their currencies. There is an increasingly disorderly currency war going on out there, and the advantage of gold is clear – they can’t print it, they can’t default on it, and there will always be demand for it. Simply put, in the global currency wars, owning gold is like abandoning the battlefield altogether.