When Bankers Anonymous hands out its annual awards for the best “recovering banker” essays of the year, the black tie crowd typically goes on chattering amongst themselves, unheeding the speaker at the stage holding the golden microphone trophies.
Why? Becuase they know that Michael Lewis will win the best essay trophy once again. Like clockwork. It’s so unfair.
If you’re at all sympathetic to what I’ve been trying to do for the past few years then – like those unheeding black-tie guests – you’ll not be surprised in the least that I’ve linked to his article in Bloomberg again, lamenting the Occupational Hazards of Working On Wall Street. Read this, its good.
With Argentina's private sector in disarray, Cristina Fernandez de Kirchner's government has been forced to increasingly bail out failing businesses, particularly importers that are critical to Argentina's stability. The nation's fiscal problems are escalating rapidly as it undertakes what amounts to a form of nationalization.
Source: Goldman Sachs
A great deal of hard currency now goes to support domestic importers (that are forced to sell at a loss to keep prices under control) and the country is becoming desperate for dollars needed to import the products the population needs. In the past, some of the greatest sources of foreign currency for Argentina have been grain exports, particularly soy. Except now there is a problem …
Cash soy prices (source: barchart)
With fiscal deficit growing rapidly and access to international markets shut off due to the recent default, Argentina's central bank has been doing the only thing a central bank can do in this situation – monetize the deficit by printing more pesos. This has resulted in inflation levels of over 36% this summer and probably even higher currently. Not quite Zimbabwe levels yet, but moving in that direction.
In response to such inflationary pressures and fully aware that further currency devaluation by the Fernandez regime is inevitable, businesses and households are hoarding dollars. One US dollar now trades at over 15 pesos in the unofficial ("blue") exchange market – some 80% premium to the official exchange rate.
Source: Dolar Blue
There are no easy answers at this juncture. With foreign reserves expected to dwindle and risks rising of foreign bondholders accelerating full debt repayment – which they can do now that they are no longer receiving their coupon payments – Argentina is running out of options. The authorities are becoming increasingly desperate as Fernandez, in search of someone to blame other than her own failed policies,
When is the U.S. banking system going to crash? I can sum it up in three words. Watch the derivatives. It used to be only four, but now there are five "too big to fail" banks in the United States that each have more than 40trillion dollars in exposure to derivatives.
Today, the U.S. national debt is at a grand total of about 17.7 trillion dollars. 40 trillion dollars is almost unimaginable. And unlike stocks and bonds, these derivatives do not represent "investments" in anything. They can be incredibly complex, but essentially they are just paper wagers about what will happen in the future. Derivatives trading is not too different from betting on baseball or football games. Trading in derivatives is basically just a form of legalized gambling, and the "too big to fail" banks have transformed Wall Street into the largest casino in the history of the planet.
The pain will be enormous when this derivatives bubble bursts (and surely it will).
If derivatives trading is so risky, then why do our big banks do it?
The "too big to fail" banks run up enormous profits from their derivatives trading. According to the New York Times, U.S. banks "have nearly $280 trillion of derivatives on their books" even though the financial crisis of 2008 demonstrated how dangerous they could be…
American banks have nearly $280 trillion of derivatives on their books, and they earn some of their biggest profits from trading in them. But the 2008 crisis revealed how flaws in the market had allowed for dangerous buildups of risk at large Wall Street firms and worsened the run on the banking system.
The big banks have sophisticated computer models which are supposed to keep the system stable and help them manage these risks.
But all computer models are based on assumptions.
And all of those assumptions were originally made by flesh and blood people.
When a "black swan event" comes along such as a war, a major pandemic, an apocalyptic natural
In a conversation this morning, I remarked how rapidly things change. It was less than 20 years ago that cutting-edge tech for listening to music was the cassette tape. We blew right past CDs, and now we all consume music from the cloud on our phones. Boom. Almost overnight.
A lot has changed about the global economy and politics, too. Things that were unthinkable only 10 years ago now seem to be reality. What changes, I wonder, will we be writing about a few years from now that will seem obvious in hindsight?
In today’s Outside the Box, my good friend David Hay of Evergreen Capital sends us a letter written from the perspective of a few years in the future. I find myself wishing that some of the more hopeful events he foresees will come true, and my optimistic self actually sees a way through to such an outcome. In that future, I will join David as a bull. But the path that he proposes to take to that more optimistic future is not one that most investors will enjoy, so on the whole it’s a very sobering letter and one that should make all of us think.
I’m back from San Antonio, where I spent four enjoyable days with my friends and participants at the Casey Research Summit. I tried to attend as many of the conference sessions as I could, and I intend to get the “tapes” for some of the ones I missed.
I did a lot of video interviews while in San Antonio, too. And finished up a major documentary. Mauldin Economics will be making all of these available very soon. It’s hard to recommend one interview over another, but Lacy Hunt is just so smart. And with no further remarks let’s turn it over to David Hay and think about how the next few years will play out. Have a great week.
Your wishing his crystal ball was clearer analyst,
My friend Peter Boockvar is not a fan of unconventional policies at the Fed to boost the economy. He’s also been a critic of the way QE has artificially boosted the stock market. Here he looks at the recent weakness in the Russell 2000 that everyone’s so concerned about and ties it to the tapering off of the Fed’s bond-buying programs…
As all of us search for reasons why the S&P 500 is at a 3 month low, the Russell 2000 is at a 4 month low, the Mid cap 400 index at a one month low, and the high yield bond etf’s are back to the lows of the year, I’m going to be blunt with my belief. S**t happens when QE ends. Back in January, obviously way early as I always am, I said QE puts beer goggles on investors and makes everything look great and the end of it in 2014 would be trouble. Twice before when QE ended, the goggles cleared up. Let’s look at the evidence of the market and I’ll use the Russell 2000 to start. The Russell 2000 took off in March 2009 after QE1 was expanded (obviously marking the market bottom) and didn’t break its 200 day moving average until May 2010, about two months after QE1 ended. QE2 was then widely telegraphed in Jackson Hole in August ’10 and the Russell 2000 took off and didn’t see its 200 day moving average again until late July 2011, about two months after QE2 ended. Operation twist then followed but it certainly was not the same as QE and it wasn’t until late 2012 that the Russell 2000 took off again of course driven by QE3/4. It then was 6 months into the end of the QE program and the Russell 2000 broke its 200 day moving average.
He makes a similar case when looking at the behavior of both mid-caps and large-caps, but the Russell appears to have been the most sensitive to the beginnings and ends of these programs.
Of course, the other side of this debate is the fact there’s also
The headline, fictional, seasonally adjusted number for initial unemployment claims of 293,000 surprised Wall Street economists a bit this morning as their consensus guess had been 300,000.
The actual, not seasonally finagled numbers, which the Wall Street captured media ignores, shows claims at all time record levels, slightly below the levels reached at the top of the housing/credit bubble in 2006. This continues 12 months of near record readings or record readings. Since September 2013 when the number of claims first fell to a record low, the data has suggested that the central bank financial engineering/credit bubble has been at a dangerous juncture. But thanks to their slavish and idiotic focus on only the made up seasonally adjusted (SA) numbers, news media press release repeaters have given little indication that by historical standards the numbers have represented a danger sign. The media echo chamber continues to present record lows as positive, rather than the danger sign that it is.
Here are the actual unmanipulated numbers and the data showing why those numbers are so troubling.
According to the Department of Labor, “The advance number of actual initial claims under state programs, unadjusted, totaled 238,539 in the week ending September 20, a decrease of 3,533 (or -1.5 percent) from the previous week. The seasonal factors had expected a
decrease of 13,214 (or -5.5 percent) from the previous week. There were 255,087 initial claims in the comparable week in 2013.”
Actual initial unemployment claims were 6.5% lower than the same week a year ago. The normal range of the annual rate of change the past 3.5 years has mostly fluctuated between approximately -5% and -15%. The current number is on the weaker side of trend norms but there are no real signs of weakening yet.
The actual week to week change last week was unremarkable, at a decrease of 3,533. There’s no seasonal pattern in the third week of September. It’s a swing week in which claims sometimes increase and sometimes fall. The average of the prior 10 years for that week was an increase of 7,485.
New claims were 1,716 per million workers counted in August nonfarm payrolls. This compares with 1,780 per million in this week of 2007, which was when the housing bubble
Going back to 1962, equities have been helped by Fed tightening
There is increasing evidence the Federal Reserve will tighten monetary policy in the next year, ending its bond-buying efforts and positioning itself to raise interest rates.
Quantitative easing is effectively over, with the stimulus program scheduled to end in October, and the “dot plot” of projections from Fed officials shows rates will likely get their first bump in 2015 with a projected fed funds rate of 3.75% by the end of 2017.
Say what you want about previous central-bank policies, but it’s indisputable that the massive stimulus efforts of the Federal Reserve were unheard of, and the winding down of its recession-era policies will be an equally unprecedented task.
As a result, many investors are worried about what the end of easy money policies will mean for the stock market. If history is any guide, however, rising rates should also mean rising stocks.
There are a boatload of caveats here. For starters, the early days of a rate hike often are characterized by weakness in the stock market…
According to Rex Nutting at Market Watch, the recent dot plot released by the Fed indicates that it is likely to raise interest rates at nearly every Federal Market Committee meeting for two years:
The federal funds rate is now between 0% and 0.25% and is likely to remain there for a “considerable time,” the Fed said Wednesday. But by the end of 2017, the majority of the committee expects the fed funds rate to rise to around 3.75%.
The investment community has been up in arms over a lack of innovation from Apple. After all, the company hasn’t launched a new product line in quite some time… that is, until now. Meet the company’s brand-new smart device: Apple Watch. Investors hope the product will send Apple’s stock to new heights. Is that wishful thinking?
Apple brings its new product into a hotly contested space, with the likes of Sony, Nike, and Samsung all offering a competing smartwatch. But there’s a common theme with reviews for these gadgets: not enough features, not enough style. Apple aims to fill this void… and will charge a premium for doing so, of course.
Apple Watch will retail for $349, notably higher than most competing watches. Since Apple is notorious for putting the squeeze on retail margins (it reportedly allows retail as little as 3% on tablets), retailers would likely make 10% on the Apple Watch, placing Apple’s revenue per watch at around $315.
In 2013, Apple sold 150 million iPhones. It would be an extremely tall order to sell that many watches, especially at $350 a pop. So for a base-case scenario, let’s say that 30% of iPhone buyers will purchase an Apple Watch. For a bullish scenario, 50%. And for a bearish scenario, 10%. Using these adoption rates yields the following annual unit sales.
Percent of iPhone Sales
Apple Watch Annual
Units Opportunity (Millions)
At a projected price of $315, we get the following projected revenues.
The controversy between oceanfront property owners and the public rages on in CA.
In this case, Vinod Khosla (co-founder of Sun Microsystems) took a stand against the Surfrider Foundation over access to the beach across his private property. Khosla does not have a home or plan to build one on the property--so privacy is not his chief issue--but he wants a resolution. He had been spending money on insurance and upkeep of the passageway.
The latest ruling in the ongoing battle over a northern California surf spot is a blow to venture capitalist Vinod Khosla
A California court issued a milestone ruling Sept. 24 that may restore public access to a beach that requires traveling across privately owned land, the latest turn in a multi-year legal frenzy that has pitted the surfers who cross the property against the billionaire who owns it.
At the center of the controversy is a low-slung metal gate that sits at the top of Martins Beach Road, an offshoot of the Pacific Coast Highway
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
For about three years, or just before the terminal Keynesian/monetarist experiment of Abenomics was launched, Japanese wages were flatlining, happily hugging the 0% Y/Y line. But that was ok, because the country had deflation or at best 0% inflation, meaning quite often real wages, adjusted for actual purchasing power, were higher than nominal wages. Then, following Abe's triumphal return after a 4 year battle with diarrhea, when he unleashed a different kind of liquidity, one impacting the BOJ's CTRL-P function, after much cajoling, threats and outright incantations, Japan's nominal wages started to slowly rise higher, and as reported earlier following the latest battery of worse than expected n...
Girls as young as 14 or 15 are travelling mainly to Syria to marry jihadis, bear their children and join communities of fighters, with a small number taking up arms. Many are recruited via social media.
It's time again for my weekly gasoline update based on data from the Energy Information Administration (EIA). Rounded to the penny, Regular and Premium were both unchanged. Regular and Premium are both up 16 cents from their interim lows during the second week of last November.
According to GasBuddy.com, only one state (Hawaii) has Regular above $4.00 per gallon, unchanged from last week, and no states are averaging above $3.90. South Carolina has the cheapest Regular at $3.08.
How far are we from the interim high prices of 2011 and the all-time highs of 2008? Here's a visual answer.
The CBOE Vix Index topped 17.0 and the highest level since early-August on Monday morning amid declines in U.S. equities to start the trading week. The volatility index is off its earlier highs to trade 5.0% higher on the session at 15.65 as of 11:30 am ET. Options volume on the VIX is hovering near 360,000 contracts, or just more than 50% of the average daily reading of around 660,000 contracts. Calls are far more active than put options, as evidenced by the call/put ratio up above 4.2 in morning trading, perhaps as some traders position for volatility to stick around.
Large call spreads traded on the VIX today caught our attention as one big optio...
Yes, the market showed significant weakness last week for the first time in quite a while. In fact, the Dow Jones Industrial Average moved triple digits each day. But it was all quite predictable, as I suggested in last week's article, and certainly nothing to worry about. Now the market appears to be poised for a modest technical rebound, and longer term, U.S. equities should be in good shape for a year-end rally. However, I still believe more downside is in order before any new highs are challenged. Moreover, market breadth is important for a sustained bull run, so the challenge for investors will be to put together broader bullish conviction, including the small caps.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, re...
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Ebola is spreading too quickly for Ebola-vaccine makers to conduct typical studies of safety and efficacy on experimental vaccines. Instead, vaccines will be tested for basic safety, but then deployed with protocols devised now in order to test for efficacy essentially on the field. Testing has to be expedited because the situation in West Africa gets worse every day while there are no approved vaccines or other treatments.
The chart below is from a paper in the New England Journal of Medicine showing estimates of the virus's trajectory projecting out to November 1, 2014. If current trends continue...
Despite the various opinions on Bitcoin, there is no question as to its ultimate value: its ability to bypass government restrictions, including economic embargoes and capital controls, to transmit quasi-anonymous money to anyone anywhere.
Opinions differ as to what constitutes "money."
The English word "money" derives from the Latin word "moneta," which means to "mint." Historically, "money" was minted in the form of precious metals, most notably gold and silver. Minted metal was considered "money" because it possessed luster, was scarce, and had perceive...
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Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
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