OIL PULLBACK

Oil is due for a pullback.

If  we can trust what we read and read what we trust, the black oozy stuff  should come off it's high pretty soon and provide one with an opportunity.

If you aren't buying it at that time you love working for the man. Most people do. That's why there's that so-called big inequality gap do-gooders, politicians and bureaucrats love to exploit. Expect another spike up first, then the pull back.

Hydrocarbons should be a permanent holding in your portfolio with some profit taking sprinkled in from time to time. People love to hate. That's never going to change. Don't let it stop you from making a profit. They've already tried making it a sin. Now they want to make it a crime.

There is much more at stake here than what the so-called cognoscenti are telling you. Despite all the caterwauling the globe is not awash in oil. And even if it were they would find some way to marginalize it, keep it from trickling down to you. 

Two big oil players, Exxon and BP, just put their thumbs to their noses and waved their fingers at official sanctions against Russia.   

Oil is a substance that goes into the making of so many other products it's meaningless to discuss. Many of these people are folks who've made their booty and now don't want you to make yours. 

Be not afraid. Buy some shares on the pullback. 

AT YOUR OWN PERIL

Populist shock waves rattled through the elite in Germany after last Sunday's election in France led by Marine Le Pen's National Front party.

Since the EU's inception France and Germany have worked together trying to keep the far-flung EU intact. Some of the dismayed German elite are calling the election results a tragedy, a real threat to the stability of the EU. 

What many of these critics fail or refuse to understand is many of these voters don't want their history, their culture and their sovereignty washed away by Brussels bureaucrats. Globalization for all of its so-called advantages, though many will deny it, is about loss of sovereignty. 

To think there wouldn't be a reaction the first time things get dicey is naive and shortsighted. To think that people are going to go gently into that wasteland is just plain arrogant. It's elitism of the first degree. Germany is to France economically as oil is to water. The two don't really mix.

Still another sign of the problem is the disagreement in high places as to whom the next EU president will be.  Jean-Claude Juncker, once the leading candidate, comes with some baggage many view as unacceptable given the recent anti-EU vote.

As one reader wrote to the Financial Times, calling attention to the bad rap populism seems to be getting in the MSM, he listed the dictionary's definition of a populist as "someone who believes in the right and ability of the common people to play a major part in governing themselves."

He concluded with: "It is understandable that advocates of  Brussels centralist government should regard this as a term of abuse but why do you all continue to portray populism as some sort of extremist and undesirable activity?"

And here's your answer, folks. The worst nightmare of bureaucrats and the MSM is the fact that some people are actually paying attention. Fail to do so at your own peril. 

  







 

FOUR LETTER-WORDS

It doesn't take much imagination if one tries to figure out the other side of the bond market.

They're both four-letter words. But here's a hint, gold.

To say gold has been an investment orphan since its 2011 peak around $1,900 an ounce is like saying politicians love to bluster and bloat. So far this year the yellow metal is up 6%, twice the gain in the S&P 500 index return.

Just to be forthright, we don't own any marijuana shares, don't smoke the stuff and try not to labor too much on Sundays. And Taylor, our dog, still laughs occasionally at our snappy one liners. 

If gold were anymore unwelcome today it would look like one's mother-in-law coming up the walkway with a stuffed suitcase unannounced early on a rainy Saturday morning.

Look around. Public confidence in bureaucrats and politicians is lower than whale dung. Bond prices are more inflated than the famous Goodyear Blimp. They took "In God We Trust" off the fiat currency a while ago. 

For years pundits have argued gold doesn't pay anything while you're holding it. Have you looked at your checking or savings account lately? Or how about those supposedly-safe CDs?  

Forget taxes and inflation. Use the old Rule of  72 to see how long it will take to double your money on what your checking or savings account is yielding. Now that's a fun exercise. Next time you have friends over turn it into a parlor game. Just be sure you allot enough time. It's going to take awhile.

We don't sell gold or have a relationship with anyone who does. That's probably our error. We're just saying something our dear old mother used to tell us when we were growing up

 "What you don't know, son, won't hurt you. But it can kill you."

Another one of those four-lettered words.


 

THE BOND BOAT

Want more proof too many are lining up on the wrong side of the interest rate boat?

Today's WSJ: "Rate-Wary Banks Build Bond Shelter."  According to the story, U. S. banks have increased their Treasury investments, joining the so-called in-crowd in their concern over deflation and uncertainty especially about interest rates.

Here's a quote: "In the first quarter, the collective holdings of Treasuries by U.S. banks grew 23%--the biggest shift since the financial crisis and the fifth-biggest on record......As a result banks now hold more Treasuries than they have since 1997, even after adjusting for inflation."

Some cynics might view this as payback to their friends at the Fed, helping to keep a lid on inflation fears and allowing the government to continue financing it's debt on the cheap. There's a spread profit here if one cares to look: Borrowing from depositors and customers for practically zero and booking over 2% income on the bonds.

Now to push the cynical aspect a bit farther, we're not for a moment suggesting that the Fed would ever let the banks know just before they hike rates so the banks can book a profit on those bonds. We're saying you can bet your first born on it.

Banks are feeling the pinch of stronger regulations, declining mortgage business and a drop in securities trading, to list a few of the industry's claimed woes. The solution, according to many bank executives, lower interest rates to ramp up volatility and bring back the mortgage business.

In other words, give them a playing field they like and rally the prices on all those bonds so they can dump them at a profit otherwise we'll have to cut more costs. And we all know what that means, cutting what hardly exists in the financial world today or, for that matter, in corporate America, service.

The bond boat is getting crowded. Just make sure you're wearing a life preserver. What didn't happen in 2014 could be lurking just around the corner in early 2015.

THE BIG HOAX

Generals are not the only ones famous for fighting the last war. Central bankers the globe over know a thing or three about the subject, too.

Forget if you can for the moment energy and food, and that's precisely what they'd like you to do, here's a brief list of rising prices of things despite all the deflation talk and concerns about low inflation among central bankers, airline and movie tickets, tuition and shelter costs, repair services fees and medical costs. 

A front page article of today's WSJ headline reads: "Insurers Push To Rein In Spending on Cancer Care" The first paragraph tells it all. "Insurers are changing how they pay for cancer care, aiming to blunt the soaring costs and push oncologists to adhere to standardized treatment guideline."

Check out your municipal services over the last year or so, things like trash and water or those unwanted but quite costly traffic fines and penalties that for some mysterious reason keep accelerating.

Our guess is the Fed is behind the curve, the economy is closer to so-called full employment than most believe. Much of the hand wringing about slack is just that, misplaced hand wringing. That should get folks thinking about the W word and the next dropped shoe, wages.
 
 Real wages are and have been flat. Many COLAs have been either cut or eliminated. If you're a COLA owner you might prefer the description decimated.

The 10-year Treasury recently hit a low of  2.44% in spite of the fact that many believe the Fed will soon siphon more juice from the punch bowl. That's a big assumption not the least of which is the Fed will get things just right or won't be too slow to recognize their mistake.

The quiver is empty. Standing by to do what ever it takes won't get it this time around. These are bureaucrats. About the only really safe assumption one can make about them is they hardly ever know what they're doing and get it correct. These are the the crowned knights of unintended consequences.

Too many investors are anticipating the horse to stay in front of the cart. But that's why surprises surprise. Look around. Yield-starved investors are desperately chasing anything and everything to sniff out higher returns on their money.

Interest rates are lower than a duck's belly. If the bond market isn't a bubble just waiting to burst, then it don't snow in Minneapolis in the winter time and former Fed Chair Ben Bernanke speaks pro bono to hedge fund mangers on request.

 The late mystery writer Raymond Chandler wrote a classic called The Big Sleep. With all the braying among central bankers about deflation, we suspect these boys and girls are working on another one that should be titled, The Big Hoax.

AROUND THE WEB

At What Cost?
http://www.latimes.com/nation/politics/politicsnow/la-fi-climate-change-impact-chamber-commerce-study-20140528-story.html

Prepare For The Unintended
http://www.minyanville.com/business-news/the-economy/articles/Awash-in-Liquidity-Part-2-The/5/28/2014/id/55108

Pretty Much A Consensus View Here
http://www.bloomberg.com/news/2014-05-26/bond-market-s-message-to-fed-your-4-rate-forecast-is-too-high.html

Where Does The Money Go?
http://www.marctomarket.com/2014/05/great-graphic-us-household-consumption.html

So Soon?
http://globaleconomicanalysis.blogspot.com/2014/05/bank-of-japan-seeks-to-end-stimulus.html

Wage Hike Versus Job Losses
http://www.csmonitor.com/USA/Politics/monitor_breakfast/2014/0219/Minimum-wage-hike-would-cost-500-000-jobs-CBO-director-defends-the-estimate.-video

Unemployment Numbers Jump
http://www.businessinsider.com/german-unemployment-2014-5?utm

Increased Wages Not Much Help
http://www.latimes.com/nation/la-na-minimum-wage-connecticut-20140527-story.html#page=1

We don't often drink tequila, but when we do.....
http://www.businessinsider.com/best-tequila-brands-2014-5

RANDON TUESDAY THOUGHTS

If you're a Pfizer shareholder you should be glad Ian Read and his crew at the big pharmaceutical finally tossed in the towel on the Astra-Zenica deal.

It was smelly from the start. This should be viewed as a victory for the little guy and a clear defeat for Wall Street bankers and their big 2014 bonuses. Now Read will have to lead this huge amalgam and earn his salary, what shareholders are paying him to do.

And the same can be said for Leif Johansson and Pascal Soriot, the two leaders at Astra credited with crafting the anti-takeover scheme that for now has apparently worked. It's now money-where-your mouth-is time for all.

How do you pay these big boys, by putting your confidence and your investment dollars where your mouth is. But be apprised you need to stay focused. Free lunches are the parlor games of bureaucrats and the PC crowd.

What you're buying with your confidence and investment is growth and productivity, not accounting legerdemain or one-off sidesteps. We've said it before and we'll repeat it here. Corporate US taxes are not just too high; they're way too high.

Should dividends and overseas corporate earnings be double taxed? Absolutely not. And that segues into our next thought, the weekend EU election results.



*****

Political pundits will do their best to play down the voter discontent with the EU and its future. It might have even dragged the Dragster, ECB President Mario Draghi, out of his catatonic state and forced him to show the awaiting globe that he indeed has a pair.

But don't forget there are 22 other economic eunuchs on that board. That's what you get when you tolerate committee rule, the hallmark of the EU. Here in US the bureaucrats are doing their best to emulate Brussels, so the outlook for any meaningful change is, as one of my old college professors used to write on my term paper evaluations, grim.

For sure a half-way decent economic recovery will dull memories, something bureaucrats the world over hope for. But it will not significantly, structurally fix much. The Obama administration's foreign policy timidity is another tinder box.     

As noted in today's Financial Times, governments from Japan to Saudi Arabia are starting to get the feeling. Like the words of an old Olivia Newton-John song:  

Let me be there in your mornin'
Let me be there in you night
Let me change whatever's wrong and make it right

They're having increasing doubts about the U.S. wanting to be there. 









 

A LITTLE HELP FROM MY FRIENDS

Everyone from time to time needs a little help.

Nothing like getting that help from your friends like this apparent example posted today at http://www.minyanville.com/business-news/the-economy/articles/Awash-in-Liquidity-Part-I-Why/5/27/2014/.

So why not the Fed to keep a lid on bond yields at taxpayer's expense.

YOU DECIDE

Placing your trust in central bankers is probably the last thing any sentient investor should do.

Their record around the globe is hardly sterling by any measure.  Occasionally, an insider speaks out, usually at the risk of being marginalized by terms like disgruntled, sour grapes or such. It's the same in just about every industry or profession.

Still, we think investors should take the time to hear what these insiders have to say and decide for themselves whenever one comes across such. So here is an interesting article with some quotes from a former member of the ECB.

Read it and decide for yourselves if it has any validity.

http://globaleconomicanalysis.blogspot.com/2014/05/former-bundesbank-vice-president.html

YOU'RE ON YOUR OWN

"... ..COLAs have been growing at record lows levels recently, averaging just 2.47% a year since January 2000. That’s well below the pace of inflation for certain expenditures"

Like the Dos Equis man, we don't often start an article with a quote. But when we do we like to point out the flaw in the quote. This one should have read "inflation for certain expenditures that count." 

Food and energy ought to bubble to mind without much prompting. Aside from rising prices and lagging COLAs, that's not the only thing going on in the COLA world these days.

Three years ago New Jersey jumped into the fray by eliminating its COLA for retirees. It's no secret that many states underfunded their plans during the good times only to have the curtain jerked aside when the wolf along with the bad times showed up the the door of these entities

Here's a quote from New Jersey Governor Chrisitie back then.

“Many states are reducing pension liabilities by lowering or eliminating cost of living adjustments (COLA), or eliminating COLAs for current and future employees. For example, Colorado reduced its 2010 COLA from 3.5% to 0% with a rate of 2% starting in FY2011. Minnesota reduced COLAs from 2.5% to 1-2% depending on the fund, and South Dakota made a 1% reduction in 2010 with future years COLAs based on investment performance.”

President Obama did everything in his power during his first term to set the stage when he froze wages for federal workers and COLA increases for federal retirees for two years. And don't be boondoggled by the cooked up CPI numbers the Federal Reserve tosses around. They're about screwing retirees and anyone on COLAs as much as about revivifying an economy.

And don't count on the courts to save your retirement bacon. A physician-client who provides medical care to police and fire officials in his city, not a small one to be sure, that over the years police have warned him repeatedly, more so now than ever: They cannot protect their citizenry. 

As one sergeant with more than 20 years experience put it, the client says, "You're really on your own."

That's especially good advice for your retirement planning. 


http://burypensions.wordpress.com/2011/06/27/winning-the-cola-war/#ixzz32mCKf1ta

http://blogs.marketwatch.com/encore/2014/05/22/states-cut-colas-for-public-pensions/

http://www.marketwatch.com/story/dont-let-inflation-crack-your-nest-egg-2014-05-24?dist=tbeforebell

REST IN YOUR BLISS

Even a cursory look at this chart shows that real wages for those who really work for a living have been and are flatter than my old girlfriend's chest. And she was a competitive gymnast. 

Click on the link below to see what wages have been over the same period for those 22,000 or so who supposedly toil for the Federal Reserve. You shouldn't be surprised. If you are, then we'll just leave you in your peace with this word: God bless you and your ignorance.

Proper attribution for the charts is listed at the end of the link. 

http://davidstockmanscontracorner.com/these-charts-should-tick-you-off-federal-reserve-salaries-up-13-annually-everybody-else-on-the-flat-line/




Proper attribution for the charts is listed

EUROPEAN ELECTIONS

Here are some quotes from Reuters and other news services picked at random about the European elections.

Ukraine.
Asked by a foreign journalist about relations with Russia, Poroshenko, speaking in fluent English, said he would insist on respect for Ukraine's "sovereignty and territorial integrity". He also said Ukraine would never recognize Russia's "occupation of Crimea", the Black Sea region seized by Moscow in March.

 France
 In France, Marine Le Pen's nationalist movement which blames Brussels for everything from immigration to job losses, was set to take about 25 percent of the vote, comfortably ahead of the conservative opposition UMP on about 21 percent.

President Francois Hollande's Socialists suffered their second electoral humiliation in two months after losing dozens of town halls, trailing far behind in third place with about 14.5 percent, according to projections based on partial results.


Greece
 It was a different story in Greece, epicenter of the euro zone's debt crisis, where the far-left anti-austerity Syriza movement of Alexis Tsipras was expected to take 26-30 percent of the vote, pushing governing New Democracy into second place.

That would appear to reflect popular frustration with the harsh spending cuts the government has adopted in recent years to meet the terms of its economic rescue program.

The surge in support for the far-left raises doubts about how much longer the center-right government can last with a parliamentary majority of just two seats, although government spokesman Simos Kedikoglou said there was no question that the government would not finish its four-year term.

Germany
 Projections by German television indicated that Angela Merkel's Christian Democrats would secure 36 percent of the vote, down from a 23-year-high of 41.5 percent in last year's federal election but still a clear victory.

The center-left Social Democrats were forecast to take 27.5 percent, according to public broadcaster ARD, with turnout up from the last European elections in 2009.

The anti-euro Alternative for Germany (AfD) party won parliamentary representation for the first time with an estimated 6.5 percent, the best result so far for a conservative
party created only last year.

Netherlands
But in the Netherlands, the anti-Islam, Eurosceptic Freedom Party of Geert Wilders' - which plans to forge an alliance with France's National Front - fell well short of its goal of topping the poll.

UK
In Britain, the UK Independence Party, which campaigns to leave the European Union, was set for a strong score after making big gains in local elections held at the same time on Thursday.

From the BBC

The National Front has come first in France's elections to the European Parliament according to exit polls in what PM Manuel Valls has declared a "political earthquake".

Eurosceptic parties appeared also to have made big gains in other countries, coming first in Denmark and Greece.

The centre-right EPP looked set to be the biggest bloc in parliament.

Turnout in the election was 43.1%, according to provisional European Parliament figures - up on last time.

But that would be the first time turnout had not fallen since the previous election - but would only be an improvement of 0.1%.

Business Insider

REUTERS/Remo Casilli

Italy's Prime Minister Matteo Renzi speaks during a confidence vote at the Senate in Rome February 24, 2014.

Europe held votes today for the European Parliament in Brussels and the big headline is going to be the strong showing for right-wing parties.

Indeed in France and the UK, Euroskpetic, rightist parties won big (the National Front and the UKIP respectively).

But from a markets perspective, the rise of anti-Europe parties is only one story.

The other story is that establishment parties did quite well in both Greece and Italy.

In Italy, the liberal party of Italian PM Matteo Renzi scored 40% of the vote, winning handily.

And in Greece, although the leftist SYRIZA party won the greatest number of votes, the coalition of New Democracy (conservative) and PASOK (traditional left) maintained a strong showing. As Nick Malkoutzis puts it, the current government has done enough to survive.

So while the Euroskeptic surge is an issue for the EU, in countries that are particularly vulnerable, the establishment parties are holding on.

UNWANTED ENERGY ABUNDANCE

They don't want a pipeline, they don't want offshore drilling and now it seems they don't want oil trains.

At least not passing through their towns. As noted in the story linked below: "It's no longer not in my backyard. It's no longer in anyone's backyard."

America's so-called energy abundance has many flaws, it's not only as some claim, fracking, but one few anticipated is the fact that despite not building any refineries for some time, the ones that do exist are mostly on the nation's coasts. That means oil discovered in places like North Dakota and Canada's midlands has to be shipped.

Enter what has become known as oil trains, 100-car long behemoths, hauling the flammable black stuff  from the Heartland to the terminals located at America's two shiny seas. "With U.S. oil production at a 28-year high, new pipelines in booming shale areas like North Dakota's Bakken have not kept up. This has also pushed more crude onto trains," according to Reuters

Canadian oil flowing to the U.S. comes by rail and these shipments in the past three years are, according to one government agency, "up 20-fold." Train derailments occasionally happen, not to mention some unpleasant side effects of even safe shipping like smell and pollution, things that get people upset when it's in their backyard.

Environmentalists or otherwise, the fact is few ever really anticipate the unintended fallout of their actions. It's a human trait as common as irrational behavior. 

Blocking Keystone XL pipeline, like most things in life, is not without its downside, depending on how one looks at it. There are vested interests on both sides. You can bet that Mr. Obama and Mr. Buffett didn't want the pipeline. One for the votes, the other the so-called filthy green stuff.

Nor did many residing along its path.and keep in mind the pipeline was to run through middle America and part of  Buffett's home state Nebraska.

California, a state noted for its environmental craziness, "may receive 25 percent of its oil by rail in 2016, up from 1 percent" currently, the state's Energy Commission says. "About 60 oil-train terminals already exist along the 140,000 miles of U.S. rail tracks, and at least 30 more are planned, including eight in California"

Now the Golden Bear State and it's 34-plus million folks is one that likes to burn some oil. So you're beginning to get a fix on the developing drama as the disgruntlement spreads. And it is. 

Two recent oil-train derailments, one in Virginia and another in the City of Brotherly Love, have raised the awareness bar of what can go wrong. The farther you have to ship stuff is like being on the freeway. The longer you are, the more chances increase for an unwanted mishaps.

Some of the disgruntled may want to express their displeasure to the Grump of Omaha, Mr. Buffett, the Moat Man himself, since he bought up all of Burlington Northern railway a few years back, the only one in and out of the Bakken area. If that sounds like a moat to you, welcome aboard. 

More recently Mr. Buffett has claimed in public he's already looking for his next elephant (Probably not the best use of metaphors given all the animals rights folks around and we love our pets.) in the energy section.

Interruption of the trains could delay the whole process and cause a jump in energy prices something most us would look forward to, especially since the price of energy is excluded from the government's CPI. 

We just won't notice we're paying more and have less discretionary income to spend will we.

http://www.reuters.com/article/2014/05/25/us-oil-railway-towns-idUSBREA4O06A20140525

AROUND THE WEB

UK Voters Speak
http://www.nytimes.com/2014/05/24/world/europe/britain-elections.html?_r=0

Watch The Vote
http://www.bloomberg.com/news/2014-05-23/europe-goes-to-the-polls-as-eu-skeptics-poised-to-gain.html

 Super-Low Volatility
http://www.testosteronepit.com/home/2014/5/22/this-happened-twice-before-and-each-time-stocks-crashed.html

What's New About Being Broken?
https://medium.com/message/81e5f33a24e1

BBQ Sauce Anyone?
http://ovens.reviewed.com/features/when-it-comes-to-bbq-sauce-is-boss?utm_source=usat&utm_medium=referral&utm_campaign=collab

The VIX
 http://www.reuters.com/article/2014/05/24/us-usa-stocks-weekahead-idUSBREA4M0S220140524

Thailand Turmoil
http://www.bloomberg.com/quicktake/thailands-troubled-democracy/

The Week Ahead
http://www.minyanville.com/business-news/markets/articles/Trading-Radar-Ukraine-EU-Parliament-Elections/5/23/2014/id/55095

THE POT AND THE PIKETTY

 

To make the most justified choices, now there's a phrase for you.

 We love it. But it does raise a few questions: justifiable for whom and for what?

Wouldn't it be a wonderful world if we could all make the most justifiable choices. Don't know about you but my taxes are justifiably way too high and I would love to lower them. Let me add, albeit, legally.

Whenever we talk to the IRS they always seem to settle on the side most justifiable for them. And from most taxpayers we've discussed the issue with they seem to--unless your last name is Warren Buffett, and he pays taxes at the capital gains not income rate--make justifiable choices in their favor.

And that brings up a question or three about the latest overnight economic media sensation, Thomas Piketty, and his Opus Inequality, "Capital in the Twenty-First Century" that had most of the MSM here and abroad writhing in their panties over.

Now we don't have a camel in this race other than the often cited but seldom used abstract notion about fair play.

It's pretty clear what Piketty is and it was pretty clear a while back what those two Harvard economists are who were taken to task for "similar errors." We got to confess, however, Piketty's explanation appears the more slimy of  the two.

What we'll find out soon is how many of the carping blowhards back then will step into the fray now.

http://blogs.marketwatch.com/capitolreport/2014/05/23/piketty-appears-to-have-got-his-sums-wrong-financial-times-says/

STUCK ON STUCK?

If you never heard of Robert Citron, you probably won't fully understand James Macintosh's "The Short View" column in yesterday's Financial Times.

Though few parallelisms are exactly the same--that's what ensnares many--it's the concept you have to grasp.

Mackintosh wrote: The good thing about central bankers promising low rates for a long time is it should encourage businesses to take risk and borrow money, without the danger of rate rises pushing up their costs. The bad thing about central bankers promising low rates for a long time is that it encourages investors to take risk and to borrow too.

Robert Citron was a long time Treasurer-Tax Collector of Orange County, California.  As Treasurer he controlled several county funds and he consistently earned higher returns than many other government agencies, so much so he at one point had to turn down money that flocked to him from other agencies. 

These were school boards, water districts and the like, all located in the county, all wanting higher yields or return on their funds, all wanting their drink from the OC Treasury wizard's investment trough.

In many years Citron's returns were nearly twice what those boys and girls in Sacramento were earning for the state of California. That kind of performance attracts attention. And Citron didn't mind the cynosure a bit.

The only Democrat at the time in a highly Republican area, voters overwhelmingly re-elected him seven times. Citron borrowed short and invested long, at one point borrowing money to use as collateral to borrow more money to invest.

The interest rate needle on the velocity meter back then appeared stuck on stuck. Some call it the carry trade, not too much different from what all those yield-starved investors today who've been piling into sovereign debt bonds of EU peripherals, emerging markets, not to mention longer-dated US Treasuries.

But an unexpected interest rate shift in 1994 caught Citron and his highly levered funds on the wrong side in what developed at the time into the largest municipal bankruptcy in US history and Citron's eventual fall from grace.

There are all kinds of leverage out there and nobody really knows how much and what kinds. If that doesn't frighten you, why would you think one of those vampire movies would? Save your money.

Mackintosh quotes a recent Bank of England statement about investors to increase yields selling options, "betting against market falls," another way of saying wagering interest rates won't surprise and volatility will remain flat.

Here's how the Bank of England stated it, overlook if you can the stilted central banker language.

"To the extent that that might reflect imprudent risk taking, it could be an amplifying channel in the event of a sharp rise in market volatility."

In other words, to quote Mackintosh again: "If something goes wrong it could go very wrong."

In Citron's case liquidity dried up unexpectedly, the banks stopped rolling over the debt so he could take advantage of the higher interest rates and Robert Citron became a chapter in municipal financial history far beyond his fondest imagination.

BUSINESS 101

Just in case Pfizer is considering making still another offer--hostile or otherwise (and we're well aware of UK regulations on M&A activity)--to Astra-Zenica, keep in mind that these mega deals often happen at or near the top of bull markets,

If you're a Pfizer shareholder, large or small, you should let their BoD know such a deal is not in your best interest. Few if any of these big mergers create value for anyone other than investment bankers in exorbitant fees.

Money is cheap. Cheap money is supposed to be for creating value, things like jobs and increased productivity, giving the economy a needed shot in the arm. Most big mergers are job killers of the first degree. Pfizer's track record in these deals when it comes to adding value is pitiful.

But forget Pfizer for now. Check the record of other similar big deals. And like that famous Wendy's commercial some time back, you too will be asking: "Where's the beef?" As we said, what little there is goes to a few higher ups and those greed-driven bankers. 

Bankers are not now and never will be your friend, especially if the term is preceded by either investment or central.

As we said before, the tax savings was the best part of this stinker from the beginning. Much of the rest was just made-up-to-look-good sound bites. Now CEO Ian Read's probably a decent sort and his kids most likely love him, but he wasn't putting any money in the majority of shareholder's pockets.

And that, my thirsty shareholders, is supposedly one of the most basic tenets of Business 101.

AROUND THE WEB

 Fed Speaks Today
 http://www.cnbc.com/id/101690849

The Smell of More Coal In The Air?
http://www.reuters.com/article/2014/05/21/us-japan-nuclear-ruling-idUSBREA4K04Y20140521

 Tick,Tick,Tick
http://blogs.marketwatch.com/capitolreport/2014/05/20/charles-plosser-thinks-theres-a-ticking-time-bomb-at-the-fed/

Rise In Crude Price Forecast
http://www.marketwatch.com/story/citi-raises-brent-oil-forecasts-for-2014-2015-2014-05-21

 Follow The LNG
http://oilprice.com/Energy/Natural-Gas/ExxonMobils-Papua-New-Guinea-LNG-Plant-Set-To-Feed-Asian-Demand.html

Holiday Gas Prices
http://www.futuresmag.com/2014/05/20/what-are-you-paying-for-gas-this-memorial-day-week

What's Silly About It Now?
http://oilprice.com/Latest-Energy-News/World-News/Silly-Putty-More-Than-Just-A-Tan-Blob-Of-Goo.html

The Push And Pull
http://www.bloomberg.com/news/2014-05-20/german-unease-with-ecb-simmers-as-anti-euro-party-gains.html

START OF SOMETHING BIG?

Like the words of that old Steven Allen classic: "This could be tbe start of something big."

We certainly hope so.

Pfizer sort of kicked the would-be tax-saving party off. And don't look now but there's another one. This one taken up by shareholders of the biggest drug chain in the US, Walgreens.

You want to unchain Prometheus? Forget all that neoclassical Keynesian government spending gibberish. Unleash what you've got. Cut the onerous corporate tax shackles and watch the economy and jobs take off.

Kudos to those investors pushing Walgeens to relocate in Switzerland after the firm's $16B takeover of Alliance Boots recently. Are you paying attention corporate America and all you shareholders concerned about having enough money for your retirement?

Insist on an end to double taxation of dividends. Put your foot down on that big, fat Washington Leviathan. Their tax nonsense and wasteful ways are just an old song nobody's going to sing any more. It won't happen without you.

If you want proof of how effective it would be just check what stock prices of other drugstores did on the news.

LOW INFLATION AND PUMPING AIR

Mohammed El-Erian, the ex-Pimco guru, who spends  much of his time now writing articles for Bloomberg and the Financial Times, a nice gig if one can get it, in today's FT penned a piece about what seems these days everyone's favorite topic, deflation versus inflation.

To begin with, most didn't expect the flattening yield curve that's been riding herd on the market since the start of the year. Nor did they expect the small cap slowdown, to name just one of many other surprises.

El-Erian lists three things, lack of European and American economic growth; US Fed choosing to ignore jobs and other data, saying they will keep interest rates low for time being and that few traders were ready for these low rates let along a flat yield curve.

With the above in mind here's a quote, noting that the most important sentences here are the first and the last rather tortuous one.

In theory, there is little to worry about as lower interest rates should be self-correcting on all three counts. By reducing mortgage rates, they increase house affordability and, for existing homeowners, the incentive to refinance mortgages--both of which support homes prices and housing activity. They also push investors out of bond holdings and into riskier assets.

Indeed, this is the main objective of the 'unconventional policies' pursued by leading central banks, in the hope that the resulting price surge in risky assets makes households and businesses feel better, encouraging greater consumption and higher investments (via energized "animal spirits").

The little to worry about should start you worrying big time. Anytime you hear in theory, it's like when the girl says, "You're a really nice guy, but...."  Look out for that but. It's a damage control term as in "Well, we did try to warn you.".

Don't lose any sleep, just be aware that bureaucrats are running this show. Any day now one may be appearing at a theater or VA Medical Center near you saying, "I'm a bureaucrat and I'm here to help you."

In our recent post, "Cooking With Stealth," we wrote the following.

The whole thing smells of an economic scam to keep the eyes of working folks off inflation and declining purchasing power. In some circles it's referred to as highway robbery by stealth.

Now go back and reread Mr. El-Erian's first and last sentences. As we said, it's nice work if one can get it. And you listen carefully you can hear the air being pumped.







   

WHEN IS REJECTION A GOOD THING?

Well, they went and did it again.

One could ask what part of rejection doesn't Pfizer's headman, Ian Read, understand.

We've heard he's Scottish by birth. Maybe that explains it.

If you're a PFE shareholder--and we and our clients are--and this last rejection, like a good vaccine, takes, you ought to be thrilled. Vaccines are something PFE and its leader should grasp; it's part of their medical portfolio.

Truth be spread and it seldom is in these big acquisitions (Just ask KKR!) this one smelled from the beginning. Escaping the USA's onerous corporate tax burden, something all big US corporations ought to consider if for no other reason than to get the attention of those Washington buffoons, was the best part of this stinker.

If you were a money manager and your track record was as pathetic as Pfizer's M&A deals when it comes to creating value, you'd been tarred, feathered and left for broke a longtime ago.

 And on a synergy basis the two sides had about as much in common as me and my ex-girl friend.

Pfizer should take a hint from Swiss voters who just rejected the highest minimum wage hike in the history of the planet by nearly 74 percent.

When you're not welcome, your not welcome.

MOVING UP THE ALPHABET FROM B TO CS

Buy backs have been much the rage in this latest bull market charge.

Now there appears to be a new-old kid in town, capital spending. If you're looking for a reliable indicator, you might want to use the old hiker's wind gauge of wetting the tip of your index finger and sticking it in the air, chances are you'll fare just about as well as those with their expensive, convoluted econometric confabulations.

And right now that moist finger seems to be drying in the direction of capital spending. This is not to suggest that capital spending had dried up. Like my old boss, it just wasn't appreciated that much. Buy backs were.

In this weekend's edition of the Financial Times the teaching of the dismal science at the undergraduate level came under some heavy fire: "The world has changed a lot. Economics has changed a lot too. But the curriculum hasn't."

At the center of this controversy is the claim that for the past 30 years teaching quantitative methods have increasingly dominated the courses. This is per se, according to the critics, not a cry against neoclassical or mathematical tenets of  the dismal science but a call for the recognition that these are only part of the total.

With all undue respect, we highly recommend the wet index finger wind test. It's right up there with another bete noire of classical economics, anecdotal evidence. And if you're really interested in discovering what's happening, put the two together.        

On a performance basis, there's something else in the air. Stocks of companies that have increased capital spending of late have far outperformed those who are using their cash, borrowed or otherwise, for buybacks. The bottom line here is sentiment and perception are cuts from the same investor fabric.

Low interest rates create low funding costs. So you might want to start looking at firms that are putting their money where their future growth is since growth drives earnings. There is, however, just one caveat. But please don't try to tell it to elected bureaucrats.

Some folks are just better than others at managing they're own money.   

GLOBAL PATRIOTISM

Well, we've got a new international bureaucratic hero.

He's not an Italian. He's a Frenchman. His name is Arnoud Mounteburg, France's so-called fiery economy minister.

As we stated in a previous post France is considering legislation to block the takeover of French firms by foreigners. In defense of his position on the issue, Mr. Mounteburg recently labeled the decree a "choice of economic patriotism."

If foreign investment in France gets any rarer it'll soon be on the international endangered species list. France already protects from foreign invaders some 11 various industries. The latest move would add health, energy, transport and telecom.

French stocks have been one of the poorest performers over the last four years. That's the good news. The bad news is if adopted the new rule could subject one tenth of the CAC 40 to the law.

Mountebourg is not new to this game. He reportedly is the one who killed Yahoo's bid for Dailymotions, a French you tube competitor. To be fair other countries, including the US, have from time to time fought against foreign takeovers. Quite often it was disguised in the interest of national security.

Mounteburg is particularly bellicose in the eyes of many. He is especially upset about General Electric's bid for the French electrical firm Alstom. Known as "decret Alstrom" or for those with smaller egos "decret Mountebourg," the good economy minister labeled it the end of  "Laissez faire economic policy."
 
Perhaps the rest of the globe, especially those with foreign capital to invest, should issue its own decree. Call it "decret le France go down the economic tubes, a decret of global patriotism."

BIG BEN'S AT IT AGAIN

Here's what everyone's been talking about, the yield on 10-year Treasuries. But for something more interesting read the link below about Helicopter Ben Bernanke. He's sill tossing the money around, only this time he's getting handsomely paid.
http://www.businessinsider.com/ben-bernankes-bond-trade-2014-5?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+businessinsider+%28Business+Insider%29 

AIR CONDITIONING AND FALLING KNIVES

Here's what we'll call a recent central bank round up.

You might have already read our post on what Pimco's Bill Gross had to say about interest rates, bonds and his new neutral, a 2 percent yield on 10-year Treasuries.

--The Fed noted US rates will most likely stay low irrespective of jobs and inflation data.

--The Bank of England ruled out an interest rate hike for now, again despite improving jobs and manufacturing reports.

--The Mario Daghi-led  ECB has been titillating investors for a while now without any simple follow up or action.

It reminds of the old joke about the city of Houston's horrid summer humidity. A couple park their top-down convertible in Lover's Lane late one night and start getting intimate. When the guy reaches for the button to put the top up for more privacy, he accidentally switches on the air conditioner full blast.

The shock of cool air blows the lady's dress up around her neck to which she replies: "That's great! But doesn't anyone do anything by hand any more."

--In Japan it's Abernomics City where consumers have been on a spending spree to escape an onerous consumption tax. If bond yields there--already below those on US bonds--get any lower they will turn into a politician and run for public office.

So here's a simple question. Will these falling yields at some future date turn into the proverbial falling knife? And if so who gets burned and how much?

COOKING WITH STEALTH

Use to be an old saying: Cooking with gas. Not only is gas abundant today, it's a clean burner. So when in doubt or you need to obfuscate, try a little stealth. 

If you like the prospect of  modest economic growth over the next few years, you'll like Pimco Chief Bill Gross' characterization new-neutral.

Back in 2009 Gross concocted the term new normal, a period of low inflation or even deflation. Technology was killing jobs faster than a politician's speech on a warm summer evening puts people to sleep. The great immigration was on loosing more labor into the open market and the financial crisis canceled the retirement plans of a pack of baby boomers. 

Too many workers, too few jobs. Consumers were tapped out but didn't know it yet. Like most in life they need to be told. And they finally were. 

New neutral suggests the global economy is transitioning from the financial crisis recovery period to what could be called for want of a better term, just plain boring. In short, it foretells a low Fed lending rate. Low here means below what many consider normal. According to Gross, the Middle America transplant, it's around 2%.

Now that's an interesting  proposition. What is considered normal in anything? We appreciate Gross and his fellow word smithers and their cuteness. But it's really dangerous to depend on a band of so-called bankers to determine or define anything let alone below normal.  (See Mario Draghi and the ECB.)

One could ask how many of these people are in fact normal? And by whose definition? 

The whole thing smells of an economic scam to keep the eyes of  working folks off  inflation and declining purchasing power. In some circles it's referred to as highway robbery by stealth.   

After all, restive masses are not a good thing for markets, bankers, money runners or politicians.

AROUND THE WEB

Cooperman Speaks
http://www.cnbc.com/id/101677414

Had Our Fill Of Verizon
http://www.theverge.com/2014/5/14/5716802/game-of-phones-how-verizon-is-playing-the-fcc-and-its-customers

China Buns Coal
http://oilprice.com/Energy/Coal/China-Burning-and-Consuming-Most-Of-Worlds-Coal.html

California Drought Spreads
http://blogs.marketwatch.com/themargin/2014/05/15/100-of-california-now-in-severe-drought-or-worse/

Where's The Confirmation?
http://www.seeitmarket.com/stock-market-hits-new-highs-lack-confirmation-concerning-13598/

Japan Ups The Ante
http://www.bloomberg.com/news/2014-05-15/abe-to-seek-public-backing-on-bigger-role-for-japan-s-military.html

Tepper On A Roll
http://www.thereformedbroker.com/2014/05/15/the-apotheosis-of-david-tepper/

DUAL OF THE 3s

Call it a dual of the 3s with the S&P 500 up 3% and the Russell 2000 down 3% so far on the year.

How that dual plays out is anyone's guess. But for now the big question is does it represent a true rotation away from last year's fast growers to this years bigger, perceive-to-be safer companies.

It's a question on many investor minds these days. It's also part of the schizophrenia of this market. For many small caps are a proxy for the US economy since most do very little beyond US borders. Just maybe last year, the year of small caps, wasn't predicting bigger, better economic times ahead for this year. Thus reality sets in.

With very little effort you'll find strong opinions on both sides, a brief respite before small caps get their second wind or the lull before the storm. On a valuation plane small caps appear expensive. The Russell 2000 changes hands around 18 times forward earnings. For the last 35 or so years that average has been mid-way between 15 and 16 times earnings.

Another possible negative is small caps offer little in the way a storm port since, unlike their big brethren large caps, most pay little if any dividends. And like it or not dividends have held center stage for a long while now.

So the vigil continues.

NEW FORM OF PROTECTIONISM?

Is this just a war of words or a new phase of protectionism?

Based on some of the rhetoric and France's proposed new law to limit if not interdict takeovers or buyouts by foreigners protectionism appears on the rise. With the French it's nothing new. 

Not too long ago the French government had a hissy fit about one of it's largest pharmaceutical firms closing down a research lab. There was some anti-foreigner talk then.

One thing is certain a new wave of protectionism will hardly be nourishing for global markets.

http://www.cnbc.com/id/101674536

HYPOCRITE NYT STYLE

Far be it from us to ever defend anyone or anything connected to the PC NYT.

We have few doubts, however, that an hypocritical, scum rag outfit like the Times would stoop to such and try to mask it some way or another. 

"Meaningful difference" tells the tale. So much for the rest of the story.

We don't know any of the participants nor do we care to. What we do know is a skunk when we smell one.

We don't normally take sides. In fact, we strive very hard not to. But in the semi-free, English-speaking world it's extremely difficult to find a more agenda-driven outfit. Maybe the Washington Post.

Paying a female less than a male doing the same job is so New York Times no further comment is necessary.