EVERYONE CAN'T DO IT

 
Jitters over high-yield junk bonds finally coming home to roost. 

What's-new-Argentina defaults on her debt. EU bureaucrats look as if they found some extra testosterone lying around and up sanctions on Mr. Putin. 

Eurozone inflation hits a four year low, putting more pressure on Whatever-it-takes Mario, the ECB president with an EU unemployment rate that is probably much higher than the officially listed 11.5 percent.

A recent poll in France shows the MSM-labled far right-wing National Front party of Marine La Pen leading for the first time in the next presidential election. Wealthy Russians are moving much of  their cash to Asian banks amidst fears of being shut out of  U.S. and EU banks. The currency of choice moving out of the dollar seems to be the Hong Kong dollar, which some believe is a good proxy for the U.S. dollar.

The current U.S. administration plays catch-up in Africa finally, belatedly, following China's heavy investing there among others like Brazil and India. As today's Financial Times reports at an upcoming summit with African leaders next week in Washington: "Up to 200 prominent US chief executives will be on the sidelines of  the Washington summit..." including one of former mayor Michael Bloomberg's and New York city's most hated corporate citizens, Walmart.  

Is there any party this administration hasn't been late to? 

Meanwhile, Congress is suing the administration. Congress which likes to pass laws permitting spying on everyone else is upset with the CIA for spying on them. Two leading Democrats, Senator Diane Feinstein, California, and Mark Udal, Utah, both on the Senate intelligence committee and both seemingly outraged, need to contact German leader Angela Merkel to see if there's any mutual interests in setting group therapy sessions.

According to what we've read the budget deficit has come down. Maybe there's some spare cash there.

From big-cereal maker Kellogg who recently reported earnings in the latest quarter fell 16% comes news a judge has given the company five days to resolve a money dispute with 226 employees over what is essentially about wages. Kellogg claims those workers average $28 an hour already, above the industry standard, and any further hike in benefits would make the Memphis-based plant unsustainable.

Here's quote from an article today on Yahoo by former Barron's longtime columnists Michael Santoli. It's really about opportunity.

Corporate profits have remained OK, on balance, arriving better than forecast but with plenty of clunkers and nasty reactions, reflecting the very mature state of the earnings cycle. 

Lower stock prices with aggregate earnings still rising make stocks less expensive – not more risky – and suggest (timidly) this is more like the shakeouts of April and in summer 2013 than the start of an enduringly nasty bear phase. This could be a needed “attitude adjustment” rather than recognition of a suddenly worsening fundamental picture. The mergers-and-acquisitions and activist-investing key party shows no signs of winding down, which are net positives for stocks in the intermediate term.

What this Kellogg situation says, this EU and African and Argentina situation, what all these situations are saying is they create opportunities for the alert, the brave and the savvy. If it were easy, remember, everyone would be doing it.

And that, thirsty friends, is one of the biggest fallacies of bureaucrats, politicians and statists everywhere since the dawn of civilization--everyone can do it.

And maybe they could, but only if they can stomach the risk, finance the cost and do their homework.

AROUND THE WEB

1. What's Pushing Market Down
http://m.thefiscaltimes.com/fiscaltimes/#!/entry/heres-what-is-pushing-the-market-down

2. Don't Discount August
http://www.marketwatch.com/story/the-hidden-truth-about-the-market-in-august-2014-07-30?dist=tcountdown

3. Oil Majors On Move
http://oilprice.com/Energy/Energy-General/Oil-Majors-Pivoting-Away-from-Risky-Countries.html

4. Asian Stocks Down
http://www.bloomberg.com/news/2014-08-01/asian-stocks-extend-global-rout-amid-earnings-concerns.html

5. Don't Doubt It
http://www.blacklistednews.com/FBI_terrorists_among_us%3A_1993_WTC_Bombing%3B_The_mind-boggling_role_of_the_Bureau

6. Electricity Price Hit All time High
http://cnsnews.com/news/article/terence-p-jeffrey/average-price-electricity-climbs-all-time-record

7. What Borders?
http://davidstockmanscontracorner.com/on-dominoes-wmds-and-putins-aggression-imperial-washington-is-intoxicated-in-another-big-lie/

8. Many Of Our Views Expressed Here.
http://www.zerohedge.com/news/2014-07-31/elliotts-paul-singer-gold-inflation-and-global-monetary-delusion

9. Margin Debt Message?
http://www.seeitmarket.com/margin-debt-flashing-major-warning-sign-stocks-13696/

10. Where The Jobs Are 
http://www.marctomarket.com/2014/07/great-graphic-us-jobs-by-region-and.

MOODY'S BLUES MAYBE

 
t.man hatter

Who says it doesn't pay to have friends in high places?

A new study on Moody's, one of the well-known rating agencies, reveals what study researchers call a "tangible bias," to quote their term.

That's a softer, kinder way, it seems, of saying a conflict of interest. Set to be presented this week at the American Association of Accounting meeting, the work compares Moody's ratings between 2001 and 2010 against those of  Standard and Poor's, its largest competitor.

According to these researchers, Moody's ratings showed a more favorable results for two of the rating firm's largest clients, Berkshire Hathaway and Davis Selected Advisors, a large New York based money management firm.

It turns out Berkshire and Davis are the two biggest shareholders in Moody's and Moody's for it part ranked bonds owned by Berkshire and Davis higher than Standard and Poor for the same bonds. How much higher, "a half notch," according to the researchers.

So what's the catch? Well, it equals about half a million dollars annual savings for the issuers of those bonds. Interest rates on bonds are determined at least in part by the quality of  their rating. Triple A-rated bonds will have to pay less interest because of their perceived quality. So half a notch here and half a notch there and pretty soon we're be talking about some serious savings.

Moody's, of course, denied any improper doings saying "...ratings are based on thorough, independent analysis of credit quality by our ratings committees, conducted according to publicly available methodologies."

Moody's went public in 2000 and Berkshire and Davis took large positions in the stock at the time. Another finding of the study showed that Moody's was slower--71 days slower to be exact--in down grading bonds "related to its long term large shareholders." 

Still another finding, per the Financial Times, showed a similar "pattern in the ratings awarded to commercial mortgaged-backed securities, which bundle together loans secured by shopping malls, office buildings..." 

Maybe this is just a flicker trying to become a flame. But then again maybe with all the corruption uncovered in the financial world these days, just maybe a deeper look will turn Moody's whole world misty blue.

WHO'S CRYING NOW?

Three times in 28 years. Even by our math that on average is once every nine years, about the time we are told many social scientists believe many marriages start to go snap, crackle and pop.

The debt issued during the 1990s took place in an Argentina that had already defaulted on its debt six times since its independence from Spain in 1816 (arguably, one-third of Argentine history has taken place in a state of default), while Argentina also exhibited questionable institutional protection of contracts and property right.

Why investors would want to hook up with a country like this except to make some quick trading profits, which is what some of these folks did, is anyone's guess. Argentina's track record goes way beyond any benefit of doubt.  

And the current administration there wheedled and weaseled and threatened and bullied to no avail. Their arrogance and obvious contempt for institutions and legal decorum shouldn't make anyone cry for them, but it should make safety-minded folks want to avoid them for a long, long time. 

The people deserve much, much better.

For an excellent summary see: http://www.zerohedge.com/news/2014-07-30/how-argentina-became-bad-debtor.

IS THERE A CHEERLEADER IN THE HOUSE?

Read this opening paragraph from today's MarketWatch story on the economy snapping back to grow 4% in the 2Q


 WASHINGTON (MarketWatch) — The U.S. economy sprang back to life in second quarter and expanded at the fastest pace since last fall, fueled by a upturn in consumer spending on big-ticket items such as cars and trucks as well as a sharp rebound in business investment.

Big ticket items like cars and light trucks financed with sub prime mortgages? Here's more.

The rebound in growth offers further proof that a plunge in first-quarter GDP was an outlier. The economy contracted sharply in the first three months of the year mainly because of an unusually harsh winter and a decline in health-care spending tied to the introduction of Obamacare.

The second-quarter rebound “provides evidence that the economy is healthy and will continue to grow at an above-average rate in the second half of this year and into 2015,” asserted Douglas Handler, chief U.S. economist at IHS Global Insight. 

Further down in the story the writer states:
Consumers mostly shelled out for major items such as cars and trucks. Spending on goods designed to last three years or more shot up 14%, the largest gain since 2009.

All this may be true, but it doesn't mitigate that as an investor one needs to be aware of the cheerleaders out there. See our recent post, "Clunker Dunkers."

Wouldn't all of us like to get two revisions per quarter of our paychecks. Most of us most likely would revise it up or down?

GDP is revised twice after its initial release. The second estimate will come out next month, and sometimes the revisions are quite large. The drop in first-quarter GDP, for instance, was initially reported as 0.1% before eventually being lowered to show a much larger decline. 

So here's a simple question:  How solid do you think these numbers are?

 http://www.marketwatch.com/story/economy-snaps-back-grows-4-in-spring-2014-07

FROM THE TOP DOWN

 
Here's a quote from Pete Atwater's, "America's Unprecedented Confidence Gap," on today's Minyanville.

Over the past twenty-five years, the confidence gap between the top and the bottom has never been greater. Given the nature of the post-banking crisis recovery, that record is hardly surprising. As Ruchir Sharma of Morgan Stanley Investment Management points out in an op-ed in this morning's Wall Street Journal, loose monetary policy has benefited owners of financial and commodity assets far more than Main Street. While the stock market is up by more than 135% from its lows, "prices for commodities from oil to coffee to eggs are up 40% since 2009, double the typical commodity-price rebound in post-war recoveries. Though rising prices for staples such as these are inconsequential expenses to the rich, they are burdens for the poor, who spend 10% of their income on energy and a third of it on food."

Even more, the post-banking crisis recovery has been notable for its lack of wage inflation. Between excess labor capacity globally and corporations need to extract more and more from their expense base in a revenue-anemic recovery, most lower and many middle class Americans have found themselves squeezed by weak wage growth and rising food, energy and rental costs. Not surprisingly this financial pressure is showing up in weak economic confidence measures like the one that the Conference Board reported this week.

Though we would take exception with Atwater's premise these are "inconsequential expenses to the rich." This is a knee-jerk, blatant assumption that people of his caliber shouldn't fall prey to. He needs to define inconsequential and rich. 

Rich is in the eye of the definer. Being middle class today, if there is even such a category, is rich in the eyes of the poor. That's what makes this whole argument so knotty. Politicians in their missionary 
zeal to vilify the wealthy as if they're all dishonest and corrupt and stole their wealth ensnares many in the middle class. See AMT tax for just one of numerous examples.

By the time these elected Neanderthals get around to correcting this travesty, if they ever do, they will have impoverished tons more. Stupidity hurts everyone, rich, middle class or poor. Stupidity is like health; it's difficult to put a price on it. 

See our recent post about "Clunker Dunkers" if you want to see another example of stupidity and its effects on confidence. We only mentioned two former Fed members, the author of the MarketWatch mentions another. That might want to tell you something about bureaucrats, academics and politicians alike.

Just whom did Atwater expect loose monetary policy to impact? One of the big reasons for the logjam of illegals at the southern border of this nation has to do with the hope for a better way of life. It has to do with middle class not gold-paved roads.

There is always collateral damage. It's a fact not an artifact of governments everywhere who stupidly punish the many in their pathetic clumsiness to capture the few.

Confidence starts at the top not the bottom. The whole message of the Fed since 2008 has been to restore confidence. Are you feeling confident yet?

BEWARE OF CLUNKER DUNKERS

There is an old saying about the more things change the more they stay unchanged.

Recently we mentioned water filled balloons and how when pushed on in one spot they bulge somewhere else. For those who didn't see the article that's just another way of saying water seeks its own level. And so does big money. Crap games float and so do investment bankers.

On Market Watch today there's a story, "How much did sub prime loans fuel GDP boom?" It's really a story about subprime auto loans, not altogether a new topic in the financial press, and how much car and light truck sales contributed to whatever recovery we're currently enjoying.

In the second quarter, motor vehicle and parts spending grew an annual 17.5%. Put another way, cars made up 3.7% of all consumer spending, the highest rate since the first quarter of 2008. 

Subprime loans make up about a third of new car-sales and two-thirds of used cars, according to data from Experian Automotive, at the end of last year. The New York Times, in a story about the subprime loan sector , pointed out that growth has climbed more than 130% in the five years since the crisis.

No prizes, by the way, for guessing which sector was cut out of regulation by the Consumer Financial Protection Bureau in an amendment tacked onto the Dodd-Frank bank reform law. 

If we all aren't' careful this administration may be getting set to foist another clunker dunker program on American taxpayers. You remember that gem. Officially known as the Car Allowance Rebate System, another one of those silly acronyms bureaucrats love, this time CARS, it was supposed to create 70,000 new jobs and stimulate the economy.

According to a post-program study by Joe Biden's alma mater, the University of Delaware, it created exactly 3,676 jobs at a cost of $1.4 million per job. 

A well known economist who is still around tossing out advice, Alan Blinder, the former vice chairman of the Federal Reserve under Sir Alan Greenspan (Are we in trouble yet?), helped promote CARS, calling it a tripartite winner that would stimulate growth, help the environment and reduce economic inequality.

Later, a University of Michigan study revealed it did help the environment by boosting fuel per gallon from 0.6 mpg to the whopping 0.7 mpg. Here's another way it helped America. According to Wikipedia, "It led to a gain in market share for Japanese and Korean manufacturers at the expense of American car makers, with only Ford not taking a significant hit.^[13]

In case you don't get it, in this administration that's called out-sourcing in-sourcing jobs. We'll close by quoting the writer's, Steve Goldstein, last two paragraphs. They'll do wonders for your confidence.

There may well be a good argument that the risks from subprime car loans, to use the memorable word from former Federal Reserve Chairman Ben Bernanke to describe subprime mortgage loans, are “contained.” There’s no evidence that the current financial system is built on leverage to the auto market in the way it was to the housing market before that bubble burst. 

But it’s also worrying the U.S. economy so quickly shifts from one area propped up by loose lending to another. 

 
In the interest of full disclosure we do not know Mr. Goldstein, have never met the gentleman and have no connection to MarketWatch.

http://www.marketwatch.com/story/how-much-did-subprime-loans-fuel-the-gdp-boom-2014-07-30