Washington D.C.

Perhaps the most important "news" of the day is that it is non-Tuesday. Yes, there was actual news news, like German factory orders dropping -2.8% on expectations of a 0.3% increase, French industrial production down -0.7% on expectations of a 0.3% increase (both misses driven by a soaring Euro which is now spitting distance away from the 1.40 ECB "redline"), the Nikkei tumbling 2.9% to just above 14000, the Shanghai Composite down 0.9%, SocGen Q1 profit plunging 13% and conveniently blaming it on Russia, speaking of Russia things continue to deteriorate even though Interfax reported that the country has received the first part, some $3.2 billion, of the promised IMF bailout - money which will be used to promptly pay Gazprom... and buy gold, a sudden conflict between China and Vietnam escalating over the placement of an offshore oil rig and so forth, but in the new normal, none of this matters.

• Both sides bury dead as Ukraine slides towards war (Reuters)
• Dollar wilts to 6 1/2-month low; shares drift (Reuters)
• Draghi Grapples With Money Markets Signaling Recovery Too Early (BBG)
• Foreign wristslaps: Credit Suisse Nears Record Tax Plea: Credit Suisse Settlement Expected to Exceed $1 Billion (WSJ)
• OECD joins IMF in cutting global growth forecast, demanding moar QE from ECB  (WSJ)
• Three Bankers Bolster Blankfein as Goldman Trading Sinks (BBG)
• Strong performance from eurozone services sector (FT)
• OECD Cuts Forecast for 2014 Global Growth; Urges ECB Action (WSJ)
• Elite Colleges Don't Buy Happiness for Graduates (WSJ)
• How Russia Inc. Moves Billions Offshore -- and a Handful of Tax Havens May Hold Key to Sanctions (BBG)

Overnight, RealtyTrac released its latest home-flipping report. What it found is that while the latest housing bubble may have indeed popped, manifesting itself not only in a decline in flipping prices but also a tumble in flipping activity across the US as a percentage of all sales from 6.5% a year ago to just 3.7% in Q1, and down from 4.1% last quarter, flipping, where a home is purchased and subsequently sold again within six months, can still be massively profitable, leading to returns that would make the pimpliest 25-year-old, math PhD HFT-firm owner green with envy.  Among the core findings was that the average sales price of single family homes flipped in the first quarter was $55,574 higher than the average original purchase price. That gross profit provided flippers with an unadjusted ROI (return on investment) of 30 percent of the average original purchase price averaged out across the US. The average gross profit per flip a year ago was $51,805 for an unadjusted ROI of 28 percent. However, it is the range that is notable: the flip ROI ranged from -8%, or a loss of $10k on the property, to a gain of 80%, a whopping $144K!

Even Case Shiller itself appears to have given up on housing as the driver of the wealth effect: "Five years into the recovery from the recession, the economy will need to look to gains in consumer  spending and business investment more than housing. Long overdue activity in residential  construction would be welcome, but is certainly not assured." And looking at actual city level data, we find that just 5 cities saw price increases in February; 13 of 20 cities saw their home prices decline.

The concept of “net neutrality” is not an easy one to wrap your head around. Particularly if you aren’t an expert in how the internet works and if you don’t work for an ISP (internet service provider). In fact, we think that lobbyists and special interest groups make the concept intentionally difficult and convoluted so that the average person’s eyes glaze over and they move on to the next topic. We are by no means an expert in this area; however, in this post we will try to explain in as simple terms as possible what “net neutrality” means and what is at risk with the latest FCC proposal. We also highlight a wide variety of articles on the subject, so we hope this post can serve as a one-stop-shop on the issue. In a nutshell, the latest rules from the FCC is truly the American way of censorship

The American people are increasingly waking up to the fact that nothing ever seems to change in Washington D.C. no matter which political party is in power.  In fact, as you will see later on in this article, an all-time high 53 percent of all Americans believe that neither party "represents the American people". The mainstream media would have us believe that the Republicans and the Democrats are constantly fighting like cats and dogs, but the truth is that the Republicans want to take us to the same place that the Democrats want to take us - just a little more slowly perhaps. In the final analysis, it is hard to be optimistic about a political solution to any of our major problems in the near future.  Most of our politicians are deeply corrupt, the American people are incredibly angry and are deeply divided, and the vast majority of campaigns for federal office are won by the candidate that raises the most money.

Just like the hit series "House Of Cards," Wall Street earnings season has become rife with manipulation, deceit and obfuscation that could rival the dark corners of Washington, D.C. From time to time we do an analysis of the previous quarters earnings for the S&P 500 in order to reveal the "quality" of earnings rather than the "quantity" as focused on by Wall Street. One of the most interesting data points continues to the be the extremely low level of "top line" revenue growth as compared to an explosion of the bottom line earnings per share. This is something that we have dubbed "accounting magic" and is represented by the following chart which shows that since 2009 total revenue growth has grown by just 31% while profits have skyrocketed by 253%.

One of the most consistent debates emanating out of Washington in the past 6 years has been that dealing with income tax. Whether high, low, "fair" or "unfair", said discussions, however, focus solely on tax paid at the Federal level, and largely ignore that "other" key tax: state. Which is surprising, considering some states such as California demand a total contribution amounting to a third of the highest marginal Federal tax bracket, which could make some wonder if those bracing sea breezes are really worth it. But what about the other states? Here is the full breakdown of the states with the top income tax rates, those with the lowest, and all the states inbetween.

UPDATE: The BLM has ceased rounding up Bundy's cattle - because of safety concerns

If you haven’t been following the unfolding drama at the Bundy Ranch about 80 miles northeast of Las Vegas you need to start now. The escalating confrontation between irate local residents and federal agents of the Bureau of Land Management (BLM) has the potential to take a very dangerous turn for the worse at any moment, as hundreds of militia members from states across the country are expected to descend upon the area and make a stand with 67-year-old Nevada rancher Cliven Bundy. The kindling for social upheaval has been growing in America for quite some time. Disrespectful and ignorant statements from billionaire oligarchs only make it worse. The question in my mind has always been what will the catalyst be to spark the brushfire? Will it be the Bundy Ranch? We’ll have to wait and see.

You’d think a guy like Rogers who aggressively lobs untrue accusations against a journalist trying to inform the American public about government criminality would have a squeaky clean background himself. After all, he was a former FBI agent. You’d think that, but you’d be wrong. Incredibly, Dick Morris points out that until recently Mike Rogers’ wife was the president and the CEO of the company that was contracted by the State Department to provide intelligence-based and physical security services. While this sort of crony capitalism is seen as “business as usual” in the cesspool that is D.C., the really crazy part of this story is that as Chairman of the House Intelligence Committee, Rogers is charged with investigating the adequacy of security at the Benghazi compound prior to the September 11, 2012 terrorist attack. You can’t find a bigger conflict of interest than that...

• GM enters harsh spotlight as Congress hearings begin (Reuters)
• Facebook's Zuckerberg earns $3.3bn through share options (BBC)
• Sheryl Sandberg has sold more than half her stake in FaceBook (FT)
• Chinese Dragnet Entangles Family of Former Security Chief, Zhou Yongkang (WSJ)
• NHTSA chief: GM did not share critical information with U.S. agency (Reuters)
• Citigroup uncovered rogue trading in Mexico, fired two bond traders (Reuters)
• Corporate America’s overseas cash pile rises to $947bn (FT)
• Thai anti-government protester killed, rekindling political crisis (Reuters)
• China Milk Thirst Hands U.S. Dairies Record 2014 Profits (BBG)
• Caterpillar accused of ‘shifting’ profits (FT)
• New iPhone 6 screens to enter production as early as May (Reuters)

Cronyism for the super wealthy starts at the very top with the Federal Reserve System, which consists of topdown economic central planners who manipulate the money supply and hence interest rates for the benefit of the financial oligarch class. It then trickles down through lobbyist money into the halls of Washington D.C., and ultimately filters down to local governments and then the average person on the street gaming welfare or disability. As such, we now live in a culture of corruption and theft that is pervasive throughout society. As a new report finds, "You can’t reform welfare programs for the poor until you’ve gotten Daddy Warbucks off the dole. Voters will insist on that - as well they should."

When you ponder the implications of allowing a small group of powerful wealthy unaccountable men to control the currency of a nation over the last one hundred years, you understand why our public education system sucks. The average American has experienced a fourteen year recession caused by the monetary policies of the Federal Reserve. Our leaders could have learned the lesson of two Fed induced collapses in the space of eight years and voluntarily abandoned the policies of reckless credit expansion, instead embracing policies encouraging saving, capital investment and balanced budgets. They have chosen the same cure as the disease, which will lead to crisis, catastrophe and collapse. 

Back in 2013 it was Syria where the world was gearing for imminent military action after a relentless series of false flag provocations by the United States (intent on securing a Qatar gas pipeline to Europe) which in the last minute was deftly diffused by Vladimir Putin. In 2014, it was the Ukraine's turn, and after a prolonged campaign orchestrated by Victoria Nuland and the US State Department (again) which succeeded in the now traditional violent coup (see Egypt and Libya), once again saw Putin victorious, after yesterday's annexation of the all important Crimean peninsula, achieved without the firing of one shot. So now that Putin has succeeded in trouncing the US twice in a row, it is time to poke some old, well-known geopolitical wounds, such as Iran. And who better to do it than Israel, where as Haaretz reports, "Prime Minister Benjamin Netanyahu and Defense Minister Moshe Ya’alon have ordered the army to continue preparing for a possible military strike on Iran’s nuclear facilities at a cost of at least 10 billion shekels ($2.89 billion) this year, despite the talks between Iran and the West, according to recent statements by senior military officers."

German banks are not heavily exposed to the Ukraine. Germany’s main vulnerability is natural gas.