ROLLING BACK BANS

t.man hatter
In our recent post, Unintended Bureaucratic Consequences, we raised the question:What do you want, heat or pollution?

Heat is a synonym for energy. The roll back of an environmental law in Australia that many believed was hurting the economy and the mining industry there is, as we suggested, no small matter.

Mining can be a dirty business with the ever-present possibilities of big environmental damage if one is to believe the environmentalists. Going back to the Santa Barbara oil spill long before the Valdez or Gulf of Mexico incidents, we have all learned offshore oil drilling has its risks, as does we now know, onshore transportation of hydrocarbons.

Though it may be a small point, one has to ask how much does the EU's dependence of Russian gas since the Ukraine eruption first broke play into this: A little, a lot or not at all? Japan is a relatively small island but a big energy dependent nation. And there are others.

Now comes the following story about the Obama administration's rolling back similar bans of offshore drilling along the East Coast in an area from Delaware to Florida.

You can bet the environmental crowd ain't cheering right now. But this is not about our taking sides; it's about still another question. Is this the beginning of a trend that could impact not just the economy but one's investments?

http://hosted.ap.org/dynamic/stories/U/US_OFFSHORE_DRILLING_AIR_CANNONS?SITE=AP&SECTION=HOME&TEMPLATE=DEFAULT&CTIME=2014-07-18-14-07-18

MARKET TAOISM

All of us, sooner or later, take a seat at the table of consequences.
                                                     Robert Louis Stevenson

Taoism is an ancient philosophy about living in harmony with the Tao or the way.

In brief, it's both source and force, the mysterious something driving everything that exists. Like the stock market, it's ineffable.

What's interesting about the market today is anytime anyone it seems starts questioning the validity of this bull market how quickly media mavens and other talking heads pounce on them with all four feet.

In many ways it's quite similar to the general mood of the country. Say you're for or against something, anything, and someone for damn well sure will take you to task. And more than likely sooner rather than later.

And in case you have yet to notice, the same holds true with research. Bulls and bears go back and forth spewing out their data almost as regularly as any big city rapid transit train.

In the nation's National Cesspool it's called gridlock. Don't laugh, but someone wrote a book about the stock market, a pretty decent one at that, titled The Tao Jones Averages. It's a book about left brain, right brain, total brain investing, assuming much of that is really around.

Stevenson's remark is probably more appropriate about today's long running bull market than many want to believe let alone accept. Few want to see a good party peter out. Now we don't know how long it will take this charade to play itself out, but it's a safer than an even bet the time remaining is much shorter than what we've enjoyed until now.

Sooner or later those consequences will hit not only the market but the Fed and the hoards of income-hungry, yield-starved. For now with the Dow up nearly 124 points at mid-day following yesterday's tragic Malaysian air carrier story, it appears as if, as one scribe today emotionally put it, "Its lost touch with reality."

In the short run, a good 9% to 12% correction would most likely keep this overgrown dandelion breathing a bit longer than otherwise. Like the people who play it, the market is many things. Irrespective of what anyone thinks, one day it will roll over like a scolded dog with all four paws in the air.

How long will that take to happen? Perhaps the best answer is a Taoist answer: "How ever long it takes"

And that has little if anything to do with reality.
t. man hatter

AROUND THE WEB

1. Frothy Homebuilders
http://247wallst.com/housing/2014/07/17/ubs-says-homebuilders-are-frothy-only-four-stocks-are-buys-now/

2. Third Plane Down In Week
http://www.latimes.com/world/europe/la-fg-ukraine-plane-crashes-20140717-story.html

3.Media Hype Continues
http://www.bloomberg.com/news/2014-07-17/latest-state-of-the-climate-yup-still-getting-hotter-.html

4. Time To Drain The Punch Bowl
http://money.cnn.com/2014/07/17/investing/federal-reserve-hawks-punchbowl/index.html?iid=HP_LN

5. What Happened?
http://www.minyanville.com/sectors/energy/articles/what-happened-energy-portfolio-energy-energy/7/17/14

6.  Calling It The Way It Is
http://www.cnbc.com/id/101845544

7. So Much For Foreign Policy Leadership
http://blogs.reuters.com/ian-bremmer/2014/07/17/world-cup-chants-reveal-true-state-of-u-s-german-relations/

8. The Feud Continues
http://blogs.marketwatch.com/thetell/2014/07/17/gundlach-fund-declared-unratable-by-morningstar-amid-prolonged-dispute/

GOVERNMENT BLACKMAIL?

For those of you who follow medical breakthroughs there's been some controversy of late about Gilead Sciences, the big biotech firm, that just came out with an apparent cure for Hepatitis C.

The controversy is not about whether the drug, Solvaldi, works or its possible untoward side effects, what's known in the industry as effective and efficacious. It's about something bigger, money. The treatment costs $84,000 for a full course of the remedy.

Now Oregon's got some funny ways to begin with. But we'll leave that for another time. Gilead is not alone in this area. It has competitors who will soon be bringing similar drugs to market. What remains in question is another key word related to the green stuff, price.Where on the scale will Gilead's competitors price their drug?

Oregon already gets a federally mandated discount or rebate from Gilead on Solvaldi of about 23%. Two of the drug companies competing for market share are Merck and AbbVie. AbbVie  has said it expects its drug to clear FDA approval around October this year.

AbbVie's CEO Richard Gonzalez has reportedly stated his firm "will compete with Gilead on the merits of its drug, and not on price."  Though it isn't clear yet who will meet the criteria for treatment, cost of the treatment is already on the front burner of discussion.

According to the Wall Street Journal, "The head of pharmaceutical drug purchasing for Oregon’s Medicaid program has a message to hepatitis C drug makers: Let’s make a deal." In trying to severely restrict the drug's use and hold costs down, Thomas Burns, pharmacy director for Oregon Health Authority, noted:
 
If the drugs work similarly, we can say to the companies, ‘Only one of you will get to do business with the state of Oregon. Which one of you wants to give the right price?’” Burns doesn't reveal just who gets to determine the "right price," but one can only guess it's not in the eyes of the drug companies if Burns has his way.

 The number of people in the U.S. with Hep C is estimated at around 4 million. Again according to the WSJ: 

Most states are required under federal law to reimburse all FDA-approved drugs, but Burns notes that Oregon operates under a federal waiver that allows it to exclude certain therapies from its coverage in exchange for providing health services to a wider population than mandated by law.
 
Oregon estimates that some 1,450 Oregon Medicaid beneficiaries would be candidates for Sovaldi under current state guidelines, which would cost the state about $160 million after including the price tag for other therapies that are currently combined with Sovaldi.

Burns apparently has decided to take a page from AIDs activists by trying to link the price of the drug to the pay and bonuses Gilead''s CEO, John Martin, received in 2013, emotionally staggering figures for many designed to pander to those who hate corporate America. Martin last year took in $15 million in salary and exercised stock options on the company worth an estimated $159 million dollars.

Burns didn't stop there. He threw in this kicker: “We fail to understand why they think the taxpayers of Oregon ought to finance their CEO’s salary.” This of course is bogus but emotionally effective rhetoric since Gilead sells more than one product and does so around the globe.

The lines keep getting clearer and clearer. It matters little whether it's fracking, global warming, health care, same-sex marriage, gridlock, taxes, spying, foreign policy or whatever. This is a divided society. And one that could get really ugly in a hurry.

There are many forms of blackmail. The current Justice Department's, some are saying, "greedy fines" against several financial firms is just one example.
c.c chance

UINTENDED BUREAUCRATIC CONSEQUENCES

 

Here's an interesting quote from down under.

 Australia's seismic carbon shift angers Greens
Australia has repealed pro-environment carbon laws that put a price on greenhouse gas emissions, the first time a developed nation has made such a U-turn. 

Given what we wrote in yesterday's piece, Not So Fast, Australia's movement might be the beginning of the camel's nose under the tent. Given that political pundits of all stripes, affiliations and favorite lobbying groups (I like mine better than yours.) have been caterwauling more recently about the absence of something that never existed except in the minds of idealists, bipartisanship, this could if it spreads get intriguing.

One might perhaps categorized it with a simple question next winter in the EU when the thermometer starts to dictate. Do you want heat or no pollution? And with the threat of more of what once was called global warming and soaring temperatures, though currently in the Midwest there are complaints about this summer so far being cooler than normal, do you want air conditioning or no pollution?

That most likely would be an interesting question this time of year for the inhabitants of Houston

Pundits rant on about countries going to war over oil and more recently water is the next suspected culprit. But the schism between believers and non-believers in the climate change world could get very big and very ugly very fast given the the necessary turn of circumstances. And no one offhand knows for sure what they might be.  

In Australia, the unintended consequences of bureaucratic meddling once again apparently reared it unwelcome head.

Prime Minister Tony Abbott, who made a pre-election "pledge in blood" to voters and business to prioritize growth above climate shift, delivered on his promise after independent senators with deciding votes in the upper house sided with his conservatives, following a power shift this month that ended years of domination by the pro-environment Greens party.

"Today the tax that you voted to get rid of is finally gone, a useless destructive tax which damaged jobs, which hurt families' cost of living and which didn't actually help the environment is finally gone," a jubilant Mr. Abbott told voters in a news conference after the Senate's decision.

t. man hatter 
 http://online.wsj.com/articles/australia-repeals-carbon-tax

LET IT BEGIN

 
 t. man hatter

 If you look up the word quixotic you'll see in its normal use it means impractical, idealistic usually intended when used by MSM as a pejorative--aka Don Quixote senselessly swinging away at windmills.

Breaking up the world's sixth largest economy, a dysfunctional, bureaucrat-laden, over-taxed gargantuan miasma, into six states is the most practical, non-idealistic merciful act of kindness and common decency any sentient human could propose.

If you click on this link you'll also see how MSM treats such proposals.

In the article the writer even mentions what nearly every Californian who isn't a union member or a crony of Governor Brown knows is one of the biggest boondoggles in the history the human race, the high speed train.

To paraphrase a famous statement made every four years at the start of the Olympics: Let the breakup begin.

That's our view. We hope you know yours.

http://blogs.marketwatch.com/themargin/2014/07/16/plan-to-cut-up-california-into-six-states-moves-toward-vote/

NOT SO FAST

As energy prices soften of late after running up for several weeks--though oil finished up Wednesday one day after Yellen's Humphrey-Hawkins appearance--there seems to be a general mood that any supply disruptions will occur from geopolitical turmoil.

A fairly reasonable assumption given all the recent global upheaval. Yesterday's Financial Times, for example, ran a huge, full page piece, The indispensable country, singing the praises of how the U.S. shale revolution headed off a possible oil crisis. And that's probably accurate. But that same indispensable country, not the usual suspect geopolitics, may prove to be the problem.

Shale has to be fracked. And like it or no, fracking, as it's known in the industry, is beginning to catch some, well, flak.  In this case, environmental flak.  In 2011 two towns in New York voted to amended  their zoning laws to ban fracking, claiming it "threatened the health, environment and character of communities."

So far around 180 towns in New York State have followed suit, adopting codes to control or stop fracking in their areas.  And this recent July 1, New York's highest court ruled that communities could use zoning laws to ban fracking.

Yes, given the U.S. mother load from hydraulic fracturing, there appears to be an abundance of U.S. oil and gas. But opposition--some even coming in research claiming that fracking can increase earthquakes-- is growing.

In boxing there's an old saying it's the one you don't see that does the damage. Among this sea of apparent abundance could be lurking in that supply chain something hardly anyone anticipated. For more, here's an excellent piece from oilprice.com.
t. man hatter

http://oilprice.com/Energy/Energy-General/As-Fracking-Expands-So-Does-Opposition-Even-In-Texas.html

  

FED POLICY DANGER

 

Stanley Druckenmiller is a pretty good investor, a guy we never met and don't know, but whose career we followed for a long, long time.

Earlier today he gave an interview to CNBC at a conference. The retired founder of Duquesne Capital Management, Druckenmiller apparently believes that the Fed is risking harming the economy with its continuing "aggressive market intervention."

"I am fearful that today our obsession with what will happen to markets and the economy in the near term is causing us to misjudge the accumulation of much greater long term risks to our economy, " he was quoted as saying.

According to the article, Druckenmiller cited "soaring production, accelerating household net worth and strong retail sales," adding it was time to jettison the Fed's "myopic goals" of  ZIRP, now five years into the previous mess.

Here's a link for more. 
rle louis
http://www.cnbc.com/id/101838762

ENERGY SECTOR

Energy is one of our pullback sectors we're looking to take advantage of.

Brent crude oil yesterday endured its largest one-day loss since the first of the year, hitting a three-month low at $104.39 a barrel while West Texas Intermediate dropped below $100, it's first such foray  there since May.

Some might call at least part of it the Yellen effect.

On the NYmex August WTI fell as low as $99.91. Just a few short weeks ago Brent traded around $115. The reasons for the retracing are numerous and we've touched on them before, some of it owing to the decline in risk premium with Libya's increasing output and the Iraqi situation jumping off the front page.

Behind the scenes lurks the possibility of progress in talks between the U.S. and Iran that, if they go well, could augur for lifting sanctions that have crimped Iranian oil exports. So supply issues for now seemed to be calming markets.

We continue to like energy for the longer term and will add to our positions with any further pullbacks, though a short-term rebound in prices would not surprise.



The above chart is from Market Watch and goes along with what we've been blogging about a pullback in energy and our recent post We Don't Need Your Well-Thought-Out Advice and yesterday's Explain Yourself.

If deflation concerns get any more priced into this market, they would be a super-duper sales day coupon for super-sized soft drinks from one of New York city officials' favorite retailers, Walmart. 
t. man hatter

EXPLAIN YOURSELF

                                          t. man hatter

Today was Humphrey-Hawkins Day and Fed Chair Janet Yellen did her best impression of former Chairmen Ben Bernanke and Sir Alan Greenspan.

But first we digress a bit.

Here's a quote from today's Market Watch

Leading market sectors lower included: Gold Miners (GDX), Junior Gold Miners (GDXJ), Silver Miners (SIL), Small Caps (IWM), Energy (XLE), Biotech (IBB), Social Media (SOCL), Retail (XRT), Consumer Discretionary (XLY), Consumer Staples (XLP), Health care (XLV), Australia (EWA), Solar (TAN), Russia (RSX), Germany (EWG), Austria (EWO), Spain (EWP), Gold (GLD), Silver (SLV), Crude Oil (USO), Natural Gas (UNG), and Bonds (TLT).

Given Fed Chair Janet Yellen's double talk tour de force, a staple of central bankers everywhere, you might want to put some illogic to work and peruse some of the sectors like mining and energy. You might also want to take a look at our recent post, Don't Need You Well-Thought-Out Advice.

A lot of money was flowing out of Australia late last and early this year, partly owing to concerns about China's expected slowdown and weakening demand for commodities. Commodities in the Land Dwn Under is mostly spelled mining. Now according to the WSJ, much of that money is returning. Europe and the U.S., so the earlier Street party line went, were suppose to pick up the slack.

Call it the kangaroo bond trade. There's a lot of yield-starved money sloshing around the globe and the yields on Australian bonds look delectable to famished investors.

Germany's economic numbers came in weak and energy has eased a bit despite troubles around the globe. Retail has been in a funk and the earlier hacking case at Target didn't help. Consumer staples were one of the first half surprises along with utilities and energy.  

Biotech got way ahead of itself before returning to this dimension in February and since has recaptured much of those loses. Spain, well, we all know about the pain in Spain.  

Health care's been on a run of late and rests near it yearly highs as some like its future prospects citing baby boomers. 

Here's another quote: "...was facing another problem, which was perhaps even bigger, but partly secret.  The nation's banks, the foundation of the system, were in big trouble. Bad loans,especially those made in real estate and in Latin America, were taking their toll. Some of the largest commercial banks were on the verge of going under. The depth of the problem was a big secret within the Fed, which had regulatory control.  But it wasn't just the banks. A number of securities firms and insurance companies  were in trouble as well."

If that sounds familiar like something you lived through just a few yesterdays ago you'd be incorrect.The above is a quote from Bob Woodward's 2000 Maestro Greenspan's Fed And The American Boom discussing what was going on in late 1990.

There are three takeaways here. What happened in 2007-08 when numerous big banks were taking on more than water, you had securities firms like Lehman and Bear Stearns biting the bullet and a stock market panic, none of this is new.

In the quote you'll notice that then as now the Fed "had regulatory control." And here's the most troublesome part. In less than a generation the Federal Reserve and their big buddies, big bankers, created not one but two major economic crises. And this last time they actually outdone themselves. 

So ramp up your confidence if you have any left in these bureaucrats and follow their lead. And to help bolster your confidence here's a term for you, one that MSM loves to toss around--transparency.

So much for Humphrey-Hawkins Day which originally came about as part of the Humhprey-Hawkins Full Employment Act of 1978 that required the Fed to appear before Congress twice a year to explain itself. We use the term explain advisedly here.

As one media wag recently wrote: "The more the Fed talks, the less the public understands."