"Marubeni [the world's largest soybean exporter to China] is deluded in thinking that payments will come once the cargoes have sailed," is the message from an increasing number of liquidity-strapped Chinese firms, "If they take these cargoes, some could go bankrupt. That's why they choose not to honor the contracts." As we explained in great detail here, this is the transmission mechanism by which China's commodity-financing catastrophe spreads contagiously to the rest of the world. A glance at the Baltic Dry is one indication of the global nature of the problem (and Genco Shipping's $1 billion bankruptcy), but as Reuters reports, "If buyers cannot resolve the issue, they may also cancel future shipments."
If one picture can paint a thousand words, the following 33 images, from Danish writer/artist duo Mikael Wulff and Anders Morgenthaler, should shed serious light on the everyday struggles, irritations, and insights of their fellow Westerners.
We noted yesterday, Japan's decision to send an Abe cabinet official to the Yasukuni shrine (home of Class A war criminals) and Abe's sending of an offering, warning it will likely see retaliation from China. We didn't have to wait long. As BBC News reports, China has seized a Japanese cargo ship (over a pre-war debt). With President Obama due to visit in days, it seems the tensions between China and Japan may force his hand to pick sides.
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%.
Another day, another downgrade in the expectations for US economic growth in Q1 (to a mere 1.5%). But have no fear, oh ye of little faith, for the hockey-stick of hope will refuel that exuberance by the year-end to an underwhelming 2.7% 2014 growth rate...
In her first public speech on monetary policy, Janet Yellen made it clear that the Fed intends to pursue a more rules-based, less discretionary policy. This is good news. The bad news, however, is that Yellen focused only on employment and inflation. In that same speech, not a single word was said about attending to speculative risks or financial instability (which are inherent in Fed-induced, yield-seeking speculation). Without attending to that third leg, the Fed is resting the fate of the U.S. economy on a two-legged stool. The problem is this. In viewing the Fed’s mandate as a tradeoff only between inflation and unemployment, Chair Yellen seems to overlook the feature of economic dynamics that has been most punishing for the U.S. economy over the past decade. That feature is repeated malinvestment, yield-seeking speculation, and ultimately financial instability, largely enabled by the Federal Reserve’s own actions.
With a multitude of equity valuation dreams hinging on the success of Alibaba's forthcoming IPO, the following chart is likely the most frightening one for many VC companies currently. As Bloomberg notes, it's becoming much harder for companies to close IPOs successfully with only 2 companies last week raising money at an amount within the expected range. On average, the eight companies from last week priced their offerings 12% below the mid-point of their range. As one analyst noted, "investors have more or less said "enough"."
Going to Cuba is like going back in time. The country lacks basic products and services, many of which we consider staples in modern life. All of this stems from a system of central planning in which government essentially owns and controls… everything. Businesses. Property. Medical services. Anything larger than a bicycle. Teams of bureaucrats lord over the Cuban economy trying to manipulate and control every possible variable. They dole out housing allowances. They set manufacturing quotas. They control prices of goods and services. Nevermind that any high school economics student understands why price controls don’t work… and typically lead to shortages. That’s precisely what’s happening right now. Condoms are now at critically low levels in Cuba. And the government’s solution is to sell expired condoms from two years ago. It’s genius.
In case you were wondering where the ammunition for today's rally in US equities came from on a day of de minimus volume and no real support from JPY carry...
With revenues meeting estimates to the dot, and with largely meaningless non-GAAP EPS (because after all NFLX is valued on a 2024 foward basis), Netflix is choppy after hours as algos try to determine what is more important for them:the miss in domestic subs, which rose 2.25 million on expectations of a 2.31 million increase, of the beat in international (and very much money-losing although now expected to be profitable in 2014) subs, which rose 1.75MM vs estimates of 1.64MM.
With Europe still on holiday, US equity market volumes were in a word, abysmal (S&P futures only around 30% of average) but VIX saw action as volume was healthy and the machines were in charge of the action from start to finish. The Dow's intraday range (and volume) was the lowest of the year. This is the first time since Oct2013 that the S&P 500 has had 5 positive closes in a row just as we predicted this morning. Between VIX slams and JPY crosses, today's action was clearly unrigged as Biotechs pumped, dumped, then ripped 2.5% off the lows as April's largest POMO sent markets scurrying. The USD rose 0.1% (on modest EUR weakness) and commodities slid lower led by silver, gold, and copper respectively. VIX closed at 13.25% - new cycle lows.
"It's impossible to work your way through college nowadays"...is the hard-to-swallow (but not entirely surprising) conclusion of Randal Olson's research into just how extreme national tuition costs have become in the US. As The Atlantic notes, the economic cards are stacked such that today’s average college student, without support from financial aid and family resources, would need to complete at least 48 hours of minimum-wage work a week to pay for his courses.
"Janet, we have a problem," is the resoundingly loud message from the latest Gallup poll of Americans preference (and relative enjoyment) of "saving" vs. "spending". It seems, despite all the hoop-la and exuberance about an 'economic recovery' that is pent-up due to weather but about to break out to escape velocity, the majority of Americans continue to enjoy saving money more than spending it, by 62% to 34%. The 2014 saving-spending gap is the one of the widest since Gallup began tracking Americans' preferences in 2001. How long before a discussion of negative rates re-appears as the rich and powerful Oz-ians contemplate the latest effort to 'change' people's mass psychology...
There’s been some buzz recently about a pick-up in business lending. Unlike some pundits, though, we’re not convinced that a surge in business credit is such a good thing. We don’t doubt that more lending to small businesses, in particular, might do some good if it doesn’t go too far. Lending to large corporations, on the other hand, is a different story. Corporations are already borrowing at a pace that’s only before been seen near cyclical peaks...
What a better way to celebrate the rigged markets that are telegraphing a "durable" recovery, than with a Credit Suisse report showing, beyond a reasonable doubt, that when it comes to traditional bricks and mortar retailers, who have now closed more stores, or over 2,400 units, so far in 2014 and well double the total amount of storefront closures in 2013, this year has been the worst year for conventional discretionary spending since the start of the great financial crisis!