by ilene - September 18th, 2014 5:17 am
Courtesy of The Automatic Earth.
DPC Old Charter Street burying ground, Salem, Massachusetts 1906
The Russian Union of Engineers has issued a report on what happened to flight MH17. The report has now been translated. It doesn’t leave open the option that MH17 was downed by a ground-to-air missile, something all other sources have so far labeled the most likely explanation for what happened on July 17. The Russian Union of Engineers instead claims the plane was attacked by a fighter jet, and that, since the east Ukraine rebels have no such jets, and multiple sides have confirmed there were no Russian jets in the vicinity, this jet had to have been Ukrainian air force.
At the very least the report should be broadly discussed in western media, and western experts asked to refute what parts of it they find fault with.
by ilene - September 18th, 2014 2:26 am
Courtesy of Mish.
It’s not often I agree with the IMF on anything, but this time I do. The Global Recovery is Precarious, says International Monetary Fund.
The International Monetary Fund has warned that the global recovery is on precarious footing, as rising geopolitical tensions and the prospect of tighter monetary policy in the US risk dampening the outlook for global growth.
In a document prepared ahead of this week’s G20 meeting of finance ministers and central bank governors in Australia, the IMF said that growth in the first half of this year was weaker than it had predicted in April. The Fund signalled it is likely to cut its next batch of forecasts which will be released in October.
The Fund’s assessment is the latest sign that mounting tensions in Ukraine and the Middle East have worsened the prospects for the global economy.
I need to pause right there, with the obvious, because the IMF can see no further than what has already transpired.
“While the recovery is projected to regain some strength in the reminder of 2014 and 2015, it would be weaker than foreseen in the spring,” the IMF said.
The Fund expects growth to accelerate in advanced economies, with the US and the UK enjoying the strongest rebound. However, the outlook for the eurozone and Japan is more uncertain, as inflation remains below central bank targets.
Acceleration of Growth in Advanced Economies?
I strongly disagree. Germany is on “precarious” footing to say the least, and prospects for the US with a declining global economy are not so bright either.
While I agree with the headline, I disagree with the details as well as how we got here and what to do about things.
But yes, things are precarious, and I suspect, about ready to go over the cliff.
Mike “Mish” Shedlock
by ilene - September 17th, 2014 11:25 pm
Courtesy of Tim Richards of The Psy-Fi Blog
Thrusting, Decisive and Frequently Wrong
We are both by design and by culture inclined to be anything but humble in our approach to investing. We usually invest on the basis that we're certain that we've picked winners, we sell in the certainty that we can re-invest our capital to make more money elsewhere. We are usually wrong, often extremely wrong.
These tendencies come partially from hard-wired biases and partly from emotional responses to the situations we perceive ourselves to be in. But they also arise out of cultural requirements to show ourselves to be decisive and thrusting; we rarely reward those who show caution in the face of uncertainty. But we're private investors, we have limited capital and appetite for risk. A little humility – or even a lot – wouldn't go amiss.
In a recent paper Amitai Etzioni has extolled the virtues of Humble Decision-Making Theory. It's a thoughtful piece and in accordance with much of the evidence curated here over the years. In general we're far too confident in the face of an uncertain future, we end up paralyzed into inaction when everything goes wrong and we then panic when it's too late.
Even worse, when the chaos subsides we almost immediately develop myopia about recent events and rapidly fall back into our old habits. In the last year or so we've seen signs of exuberance in certain areas of markets even though we're less than five years away from the biggest financial crisis in most peoples' memories. We're pulled hither and thither by our emotions and our biases and, for the most part, remain unable to control ourselves.
Work In Progress
Given our lack of control then a rather more cautious approach to investing would seem to be sensible. Even if we can't debias ourselves and we remain subject to the ebb and flow of our emotions then we can at least recognize these limitations, and approach the topic in an appropriately humble frame of mind. As usual, though, we need a metaphor for the moment and, fortunately, Etzioni provides us with one:
"If … one recognizes that goals tends to be very unrealistic … and that people …
by ilene - September 17th, 2014 6:32 pm
Courtesy of John Rubino.
Back in 2006, when the housing bubble was entering its truly (and obviously) manic phase, mega-bank Citigroup was being pressured by Wall Street to grow faster. And rather than pushing back against what were clearly ill-timed demands from desperately-short-sighted analysts, Citigroup CEO Chuck Prince uttered some words — and adopted a strategy — that live on in the annals of banker cluelessness:
“As long as the music is playing, you’ve got to get up and dance.”
Here’s how Businessweek covered the story at the time:
“The concerns are perfectly legitimate,” says [CEO Charles “Chuck”] Prince. “People are saying ‘Do something!’ They want to know how long is this guy going to take?” Not to worry: “Investors will be happy to hear that Prince is dropping hints that he’s revving up the deal engine again. He laments that for the past three years he had to stay out of the market and focus exclusively on making existing operations more profitable. ‘We’re getting ourselves back on the playing field,’ he said, noting that most of the acquisitions will be in foreign markets. There’s already chatter in London that he’s eyeing Lloyds Bank or BNP Paribas.
Here in the U.S., consumers are Prince’s target. “If we don’t grow consumer, the whole place has modest growth,” he says. Prince is planning big branch expansions in locations where many customers of the company’s Smith Barney brokerage business live, hoping to sell them bank products. In Boston, for instance, Citi is planning to build 30 branches next year as a service to 30,000 Smith Barney clients. If it’s successful, Citi will roll out new branches in Philadelphia and a half-dozen other cities.
And some, at least, in the financial community think this is a good idea. “We are impressed by [Citi’s] organic growth efforts, including 785 new branches year-to-date,” said one analyst.
This, it should be noted, was one short year before the US housing market and consumer spending in general imploded. For more on Citi’s housing bubble tragi-comedy, see Banks and Bubbles III: “We’re getting ourselves back on the playing field”
Now fast forward to the present as an even bigger global financial bubble enters its terminal phase, and Citigroup is back on the dance floor, stomping around to even more dangerous music. From today’s Bloomberg:
by ilene - September 17th, 2014 5:08 pm
A lesson in the relativity of money. Our dollar is not ahead in the race to zero, the Yen and Euro are taking the lead. Anyway, I do not believe the dollar is going to zero, for the record.
Bam. The dollar is on a damn tear.
Here is a chart of the dollar surging against the Yen after that Fed announcement. Obviously, people believe that rate hikes are coming sooner than previously thought.
This is a continuation of a recent trend, as the dollar has been on a tear for months, crushing naysayers who thought the dollar was finished and doomed.
Here's a longer-term chart of the dollar against a basekt of other currencies. On fire.
by ilene - September 17th, 2014 3:49 pm
Prices of ground beef and milk are soaring; both are hitting all-time highs. According to the Bureau of Labor Statistics' numbers, the price for a pound of ground beef has climbed by 88% over the past five years.
While the overall Consumer Price Index declined in August, the decline was largely due to a drop in the energy indexes which offset increases in food and shelter.
By Ali Meyer
(CNSNews.com) – Although the overall Consumer Price Index dropped by 0.2 percent in August, the price index for food rose 0.2 percent, with the average price for a pound of ground beef rising to $4.013 per pound--the first time it has ever topped $4 per pound.
In July, according to the Bureau of Labor Statistics, the average price for a pound of ground beef had been $3.884 per pound—which was the record price up to that point. From July to August, the average price jumped 12.9 cents, an increase of 3.3 percent in one month.
Hot on the heels of yesterday's low PPI and this morning's falling CPI, we thought it worth noting (given The Fed's pre-occupation that inflation is running too low) that the price of milk – that staple of the American diet – just hit an all-time high. Nope, no inflation here…
As an aside, while correlation is not causation, the price of milk and the growth of the Fed Balance Sheet have an 82% correlation since March 2009.
by ilene - September 17th, 2014 3:18 pm
Courtesy of The Automatic Earth.
Esther Bubley The gas behind the gun, Columbus, Ohio Sep 1943
I want to start off by expressing my deeply felt admiration and gratitude for the way the Scots and Brits alike have made the run-up to the September 18 referendum a peaceful and civil affair. It’s not at all hard to imagine how this could have been very different.
Hats off to y’all for that. And may it be an example for future independence referendums elsewhere. It should, the entire world should feel profoundly indebted to you for this. The reason why will soon become clear as other peoples pursue their rights to independence.
It’s precisely because there’s so much pressure from incumbent politicians and political-industrial power blocks to keep existing larger entities intact, that they should be broken. Because in the end that is all there is: the question(s) of power, and of losing – some of – it. Of power and money.
And those are simply and plainly the wrong questions. These are not the things that should guide our decisions. If you vote either Yes! or No! in Scotland tomorrow because you think your choice will make you richer, you’re on the wrong track. Not everything in life is about money.
Nobody should want their leaders to be driven by a desire, even hunger, for power. Our leaders should be motivated by the best interests of their people, their voters, not by their own personal interests. That may sound naive, given what our societies, and the international bonds and ties they have forged, have turned into, but that only means we must repair those societies, and the ties with others. And make sure we pick our leaders for the right reasons next time around.
As I write this, Obama is addressing US troops in Tampa, telling them how important they are to the nation and all that. And the first image that evokes is of how the US treats its army veterans. US troops are disposable, they’re cannon fodder, no matter what this or that president says. US soldiers are disposable pawns in a power game.
Earlier today Spanish PM Mariano Rajoy ‘threatened’ the Scots Yes! voters that it will take years before their independent nation could join the EU. Mr. Rajoy has no business talking about Scotland’s…
by ilene - September 17th, 2014 2:05 pm
Courtesy of Mish.
In yet another sign of market over-exuberance, the Wall Street Journal reports Share Repurchases Are at Fastest Clip Since Financial Crisis.
Corporations bought back $338.3 billion of stock in the first half of the year, the most for any six-month period since 2007, according to research firm Birinyi Associates. Through August, 740 firms have authorized repurchase programs, the most since 2008.
The growth in buybacks comes as overall stock-market volume has slumped, helping magnify the impact of repurchases. In mid-August, about 25% of nonelectronic trades executed at Goldman Sachs Group Inc., excluding the small, automated, rapid-fire trades that have come to dominate the market, involved companies buying back shares. That is more than twice the long-run trend, according to a person familiar with the matter.
Large Repurchases in 2014
Rewarding Investors – Not
Contrary to the above graphic (and common wisdom), companies do not reward investors by buying back shares at inflated prices. Companies bought back the most shares in 2007, right before the crash, and the least shares at the most opportune time in 2009.
In practice, insiders buy low and sell high, and pocket cash from options all the way up. Insider activity is exactly the opposite of how companies treat shareholders.
Mike “Mish” Shedlock
by ilene - September 17th, 2014 10:41 am
Courtesy of Pam Martens.
Yesterday the Senate Finance Committee convened a hearing to chew on one humdinger of a new report from the Government Accountability Office (GAO). The GAO report found that 314 taxpayers have squirreled away at least $25 million in their Individual Retirement Account (IRA) for an aggregate of $81 billion for all 314 taxpayers. That puts the average account within the $81 billion at an astonishing $258 million.
The GAO used 2011 data, the most current available to them from the IRS, and noted that since some of the tax returns were for joint filers, the term “taxpayer” may mean an individual or a couple. Still, even two IRA accounts tallying up to $258 million is off the charts.
The figures are raising eyebrows in Congress. No one can say with any certainty how an IRA could grow to such astronomical sums. IRAs have only been around since 1975. Adding to the perplexity, the GAO calculated that if a person made the maximum IRA contributions from 1975 through 2011 and invested the money in the Standard and Poor’s 500, it would have grown to only $353,379.
Senator Ron Wyden, Democrat from Oregon, chairs the Senate Finance Committee and opened the hearing with this assessment of the magical IRAs:
“So how did those massive IRA accounts come to be? In many cases, they’re sweetheart stock deals that most investors would never have access to. Executives buy stocks at a special, rock-bottom price – sometimes fractions of a penny per share – and use an IRA as a tax shelter. The stocks start out dirt cheap, but just like that they turn to gold, and the IRA shoots up in value.”
Venture Capital Risk Taking and Cash Burn Rates Unprecedented Since 1999; 47% of Nasdaq in Bear Market
by ilene - September 17th, 2014 12:50 am
Courtesy of Mish.
Venture capital risktaking and burn rates on cash are at levels that exceed the technology bubble in 1999. Companies that haven’t made a dime, and perhaps never will, have valuations of $10 billion more.
Curiously, it’ venture capitalist Bill Gurley who Sounds Alarm on Startup Investing in an interview with the Wall Street Journal.
WSJ: Mr. Gurley, who often voices his opinions on his blog, Above the Crowd, sat down with The Wall Street Journal as part of a Journal event series called “Tech Under the Hood.” The investor in Uber, Zillow, OpenTable and other Web startups spoke on a wide range of topics. What follows is an edited excerpt of a conversation specifically about potential cracks in the tech-startup investing scene.
Mr. Gurley: Every incremental day that goes past I have this feeling a little bit more. I think that Silicon Valley as a whole or that the venture-capital community or startup community is taking on an excessive amount of risk right now. Unprecedented since ‘’99. In some ways less silly than ’99 and in other ways more silly than in ’99. I love the Buffett quote ["Be fearful when others are greedy and greedy when others are fearful"] because it lays it out.
And I guarantee you two things: One, the average burn rate at the average venture-backed company in Silicon Valley is at an all-time high since ’99 and maybe in many industries higher than in ’99. And two, more humans in Silicon Valley are working for money-losing companies than have been in 15 years, and that’s a form of discounted risk.
In ’01 or ’09, you just wouldn’t go take a job at a company that’s burning $4 million a month. Today everyone does it without thinking.
The Guardian picks up on the story in Leading tech investors warn of bubble risk ‘unprecedented since 1999′.
Two of the world’s leading tech investors have warned the new wave of tech companies and their backers are taking on risk and burning through cash at rates unseen since 1999 when the “dotcom bubble” burst.
Bill Gurley, partner at Silicon Valley-based investor Benchmark, sounded the horn of doom on Monday warning that “Silicon Valley as a whole