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.