t. man hatter
The formal definition of a recession is two consecutive quarters of negative gross domestic product growth.
Well, say hello to the European Union's third largest economy, Italy. The country's national statistics office yesterday announced the Italian economy in the second quarter shrank by 0.2%. That figure followed a contraction in GDP of 0.1% in the first quarter.
More bad news came with the report that German factory orders declined at the fastest rate in three years and German 10 year bond yields dropped to a record low of 1.1% in the EU's largest economy.
Toss in the the counter sanctions former German Chancellor Erhard Schroeder's buddy, Vladimir Putin, just winged toward the EU and the U.S. and one could postulate the squeeze is on.
Two people this news hit hardest are European Central Bank President Mario the Dragster Draghi and Italian Prime Minister Matteo Renzi. Recall earlier this year Renzi was pushing for easing regulations that would call for more structural repairs to the infrastructure of the weaker EU members, one of which is Italy.
When you paint the building and don't repair any of the structural defects it's called a superficial face lift. In a nutshell that's been the message of reluctant European leaders all along, just paint over the blemishes with easy money and maybe they will somehow magically disappear.
Renzi's critics--and the list is growing--accuse him of political grandstanding "...instead of implementing a critical overhaul of the labor market and the Italian bureaucracy," according to the Financial Times. One economist noted: "Italy has been stuck in stagnation for a year after eight quarters of recession. This raises the urgency for Renzi....to deliver on the economy side and make real reforms."
This is Italy's third recession since 2008.
When is politics not politics?
Never.
A follow up to our recent post "Fractured Fracking" in Colorado where two anti-fracking measures were set to go on the November ballot have come under question by two of the state's most powerful Democrats, Governor John Hickenlooper (D) and Representative Jared Polis (D).
The possible deal is about re-election not about the environment or energy independence. As we noted in our earlier post both Hickenlooper and U.S. Senator Mark Udal (D) face re-elections. And fracking for all its suspected ills has helped drive economic growth, according to today's Wall Street Journal.
That's another way of saying jobs, consumer consumption and all those things that make folks feel better and get in incumbents re-elected.
For his part Rep. Polis aligned with the anti-fracking environmental crowd. So it's a political game of Hickenlooper-Udal versus Polis-environmentlists. The issue is not lost on Hickenlooper's and Udal's opponents.
The pro-fracking people countered with their own ballot initiative, "which would withhold oil and gas revenue from communities that tried to limit energy development." So the drill bit, as one might put it, has been honed. This is a pocketbook issue, most likely the only one that ever gets the attention of political hacks.
Fracking in Colorado in the last few years has increased more than 20% and oil production more than doubled, no small items to the state coffer. Now Hickenlooper--supposedly a supporter of fracking, at least during election season-- is pressuring Polis to drop his anti-fracking measures if the industry and its backers would do likewise.
It's a nice feud, one that can expose elected officials for the hypocrites they are. This is about leverage, the winds of change. Pro-fracking people would be wise not to agree to the offer. If they do so now, it will be to their chagrin later.
Once re-elected it will be open season on the fracking industry. You might not want to trust in a higher deity, but putting any trust in politicians is a first-degree fool's errand.
Talk about big hogs slopping at the public taxpayer trough.
Multi-giant industrial conglomerate GE is at it again, tossing its considerable weight around in the Export-Import Bank controversy.
Just to refresh, EXIM was originally created to help US small and medium sized businesses sell their products overseas by extending credit to foreign buyers. Now what part of behemoths like GE and Boeing do you consider small or medium sized?
If you detest crony capitalism, you got to detest this handout. What's caused some of the controversy is a recent study at George Mason University showing that just "10 US companies receive three-quarters of ExIm financing, with GE among the main beneficiaries."
Still another part of the controversy this week stems from what we mentioned last week about US-African trade. The US apparently has fallen behind India, China, Brazil and others in investing there. As we pointed out much of this problem can be placed at the door stoop of the current administration
A question we've posed before and will again: Is there any party this administration isn't late to?
That's just one of the ironies of the tale. Another is GE and it CEO Jeffery Immelt who are one of the 'biggest participants," according to the Financial Times, '"in the Obama administration's Power Africa initiative to provide $7bn backing for energy projects there over the next five years."
Energy is GE's business. Big power wields big influence. Just last month Standard & Poor's issued a warning that killing off ExIm would negatively effect another big slopper at the trough, Boeing, "the commercial aircraft maker that receives more than a third of the bank's credit."
Now this is just an idling question, you don't suppose GE ever floats any of its paper debt assets through the big rating agency do you? We didn't think so, either.
MSM and the administration is trying to color this as a hate-based, radical idea from conservatives and Tea Party folks. We don't know anyone in the TP, have never met one and have little or no inclination to do so to know this deal is a crony capitalism ringer of the first degree.
If you have an opinion don't let it just idle.
t. man hatter
t. man hatter
Two interesting charts.
The opposite of calm is chaos. So what's the opposite of low volatility, violence? MSM likes to poke fun at so-called gold bugs as they run interference for the Fed. But they never mention paper asset hogs.
To us the Fed is nothing more than a coterie of paper asset hog farmers. They'll toss the slop to anyone and everyone willing to swallow it.
We are among those who think--and we're not shy about saying it, either--inflation will be a bigger problem than currently perceived by many. Reserving the right to be incorrect doesn't disturb us in the least.
It's part of the reward-risk ratio bureaucrats and politicians are always trying to legislate away. You do your homework and then your take your risks.
We have written about gold before, most recently last month in "Don't Need Your-Well-Thought-Out Advice" and "Gold."
Here is a quote from the source of the above charts.
If we assume inflationary risks are not transitory in the short term,
then that means the Fed may ultimately be b
ehind the curve and be
considerably lagging in terms of responding to inflation (which I
personally do not believe is a real threat just yet). Gold tends to do
well in negative real-rate environments, whereby inflation is higher
than interest rates.
We may be on the verge of that happening again, which in turn explains
some of the more recent strength in commodities generally. Our
equity-sector ATAC Beta Rotation Fund
BROTX
+0.39%
is currently overweight materials relative to the S&P 500 as
momentum persists there, consistent with the idea that inflation
expectations are altering.
So while the Golden Age never actually happened, the Age of Gold still
might for those interested in diversifying away from the honey-badger
U.S. stock market, which doesn't seem to care about risk until it
actually does. I don't know about you, but when I look at a chart of
Newmont Mining
NEM
+1.43%
, that sure does seem like an interesting spot to position in.
http://www.marketwatch.com/story/gold-may-be-entering-a-golden-age-2014-08-04
t. man hatter
Scams get detected in many ways.
One of the simplest though perhaps the least scientific is when everyone jumps on board and you start seeing articles and new
releases about it everywhere. People at cocktail parties brook the subject to strangers and its shows up on your favorite local six o'clock news and morning talk shows.
In the stock market such conditions
usually get labeled as bubbles. When its the not-your-friend bureaucrats at the central bank pulling the scam you need to pay attention.
The classic definition of inflation is too much money chasing too few goods. But truth is there are many ways to define inflation, asset inflation, consumer prices, wage inflation and so on. They don't all have to occur at the same time to have inflation. One could easily make the case with the explosion of questionable IPOs coming to market in this bull run is being fueled by too much money chasing too few IPOs.
So the solution is simple, keep money easy and plentiful and just bring more IPOs to market. It's the fulfillment of P.T. Barnum's adage: "There's a sucker born every minute." Regulations are not about making things better. They're about outlawing the existence of suckers. But until we are all robots and drones this flies in the face of the human genetic code.
During the subprime real estate mess you had too much easy money chasing too few structures. Everyone according to the government could own one or, for that matter, two with minimal out-of-pocket costs or risks. It was a way supposedly to close the hated income gap. A basic problem here is who gets to define inflation.
So far it's been the Fed with their put-this-in-and-take-that-out indicators within their vodoo econometric models. And their get-away drivers for the most part are MSM. So when trouble strikes, the Fed, following their archaic Keynesian up-bringing, print money to stimulate consumer spending.
It's akin to just repainting the house without repairing any of the underlying structural defects. Go back and look at all the screaming among the EU peripherals a couple years ago at the mention of austerity. The austerity-minded Germans took enough heat for it that they won't need if they so choose any Russian heating oil this winter.
Politicians and bureaucrats cause it and then as is their style want to opt out of any blame. In fact, their history, as always, is to blame someone else. It's pretty difficult to find a more convenient group than the wealthy or successful.
Easy money doesn't exist in a vacuum; it goes somewhere. And that's to those who know how to multiply it best, in this case the now vilified, much maligned wealthy set. Are they doing anything wrong when the Fed showers them with this easy money, it's there for everyone?
Some reformers, usually dunderhead politicians, scream about loopholes. Loopholes are not illegal. The Fed, paneled as it is with all these academic economic geniuses, surely understands before hand that much of this easy money will find its way to assets. In fact, one could easily argue that's exactly what the Fed wants with it famous "wealth effect" maneuvers.
When you create bubbles which central bankers are noted for and those bubbles burst the folks you frighten the most are the have nots, not the haves. Again there is nothing sinister or illegal here. One of the suspected bubbles much talked about today are college educational loans. More and more people according to government mandates are presumably enjoying the right to get informed, educated.
Educated people from what we've seen have a history of working their way into becoming for the most part haves. Either the statistics are correct or they're bogus. If they're bogus then that too says something about the whole costly educational system.Why have it, especially at it current bloated prices?
Much of the criticism of the wealthy is underhanded, as in baseness and dishonest. Are there any dishonest Congress persons? The history of dishonesty and dissembling in Congress is long and lush. Anybody in sports dishonest? Anyone in business or the church dishonest? Any dishonest people among the poor, the lazy or the infirm?
One of the implied criticisms against the wealthy is because they are wealthy they can do so much more damage. But history tells a different lesson. It's really hard to do more damage than a well-intentioned, benighted politician or bureaucrat. In fact, well-intentioned is the most dangerous hyphenated word in the English language.
So keep your eye on the current scam. It has all the earmarks of the well-intended, benighted.
That's our view. We hope you know yours.
A-fracking we will go.
Maybe, that is, if you live in Colorado you might go but with some serious restrictions if a group of environmentally-inclined voters get there way this November.
As the deadline for ballot measures to qualify on the ballot ends this coming week, three initiatives, two of them not so friendly to energy firms, according to the Wall Street Journal, already have the necessary number of signatures to qualify.
For every action you can bet there will be a reaction and, sure, surplus energy, vis a vis, hydrocarbons, can up to a point be a good thing. Two of the initiatives if adopted would limit energy companies from drilling within 2,000 feet of schools and homes and would allot local governments more say in regulating energy projects.
For the other side, backed by oil and gas firms and some big-named Democrats, is an imitative that would ban local communities that prohibit development from receiving funds paid to the state by the drilling companies.
So far all the signatures must be verified by the secretary of state's office. The issue has flared up recently and from the looks of things is hardly unique to Colorado. Cheap energy despite all the hoopla about America's so-called good fortune, may never trickle down to Main Street.
If anything it shows just how fractured the nation remains.
t. man hatter
In this crazy, topsy-turvy interest rate and low volatility scenario few anticipated, one could break things down by what is in favor versus what is out of favor.
Favor can be synonymous with fad or latest trend. The absence of volatility in the eyes of many became a trend that investors had to learn to deal with as it caught many off guard including the big macro firms.
Out of favor are macro-based hedge funds versus M&A hedge funds. Part of the reason is how much cash is sitting on many corporate balance sheets doing little or nothing. In recessions cash becomes king in many quarters. Risk-reward ratios change.
This is another form of active or activist-based investing that the public, as is usually the case, was slow in recognizing. It's also a bit mystifying. But as we keep saying floating crap games float. Like prostitutes they head to where the money can be made.
Active versus passive is another area or way of putting it as investors pulled in their risk antlers in what might turn out to be a huge paradox if for no other reason than false perception. Passive may not be so passive in the end with any untoward surprises.
Passive in brief is a rejection of alpha, at least for the nonce. Alpha has its costs. It's that so-called extra for-a-fee oomph that professional management is reported to add to investor returns. Economists practically everywhere besides stilted, obtuse language love index investing. It's the one-size-fits-all-you-don't-have-to-think-anybody-can-do-it-it's the-easy-road to investing success.
Another group out of favor, small cap equities, particularly in the face of potential rising interest rates started the year on a tear in what many believed was going to be a straight forward recovery where interest rates went up, bond yields declined, cyclicals rebounded and the sun shined everywhere.
The other side of that same small cap coin is large, dividend paying companies that provide a feel good quality. They too can go down but the perception is if they do it will be less than their small cap brethren owing to those dividends.
Still another recent favorite owing in part to low volatility has been what some call event-driven. Tax inversions all the controversy of late are just one example. A lot of money got arbitraged on the Pfizer-Astra Zenica deal that failed, though Pfizer's CEO recently said he's still on the prowl. Since then others like Medtronic's have captured the headlines.
Argentina's bond default is another event-driver especially with certain hedge funds tossing money into Argentina stocks and the prospect of the upcoming election there will bring a more responsible government to power. Out of favor now might become in favor soon.
From last week's action it looks as if high-yield bonds and emerging markets just made the out-of-favor list after defying and mystifying pundits for most of the year. Yield-starved is yield starved. For the Taoist it is what it is until it isn't.
With the loving the punch bowl crowd inflation or the sniff thereof was out of favor. These were the deflation lovers. For bears and economic recovery hopefuls and those who bet big on rising interest rates it was just the opposite. For these people pricing power via higher wages still appears out of favor but that might be changing soon.
Energy prices have been playing the out-in-out favor game much of this year. With the recent pull back in U.S. crude to below $98 a barrel, its lowest level since last February, it looks out of favor again. And that's why we favor it.
Earnings once again will be on the front burner next week.
After what some would call an interesting week in another case of good news for one may be bad news for the other as in a heavy weight economy versus the market match up.
You can almost hear them now: "Please, please don't take away the punch bowl." And some of the punch evaporated from the UK manufacturing bowl as the purchasing manager's index there dropped more than expected and the pound took a haircut to $1.6848 from $1.687 to settle at a seven week low.
The S&P 500 SPX and the German DAX 30 suffered their biggest weekly loss in two years. The DAX shed 2.1% for the week and the S&P 500 2.7% and, if as they say misery loves company, the DJIA refused to be left out, cratering 2.8%, its biggest weekly decline since late January this year.
Monday, August 4
US Economics (Time Zone: EST)
09:45 ISM New York - prior 60.5
11:00 Fed to purchase $950m-$1.15b bonds in 22-30 year range
11:30 Treasury to sell $28b 3-month bills and $25b 6-month bills
Global Economics (Time Zone: GMT)
01:30 AUD Retail Sales
07:30 CHF Manufacturing PMI
08:30 GBP Construction PMI
Earnings
After:
AIG (AIG)
Marathon Oil (MRO)
Pioneer Natural Resources (PXD)
ChannelAdvisor (ECOM)
Tuesday, August 5
US Economics (Time Zone: EST)
10:00 ISM Non-manufacturing (July) - expected 56.5, prior 56.0
10:00 Factory Orders - exp 0.6%, prior -0.5%
11:00 Treasury to sell 4-week bills
Global Economics (Time Zone: GMT)
01:30 AUD Trade Balance
01:35 JPY Services PMI
01:45 CNY HSBC Services PMI
04:30 AUD RBA Rate Decision
08:30 GBP Services PMI
Earnings
Before:
Archer-Daniels-Midland (ADM)
Emerson Electric (EMR)
Louisiana-Pacific (LPX)
CVS Caremark (CVS)
MGM Resorts (MGM)
Cablevision (CVC)
Regeneron (REGN)
After:
Walt Disney (DIS)
Frontier Communications (FTR)
EOG Resources (EOG)
Activision (ATVI)
Continental Resources (CLR)
First Solar (FSLR)
Groupon (GRPN)
Rocket Fuel (FUEL)
FireEye (FEYE)
Office Depot (ODP)
Coach (COH)
Zillow (Z)
Liberty Media (LMCA)
Wednesday, August 6
US Economics (Time Zone: EST)
07:00 MBA Mortgage Apps
08:30 Trade Balance (June) - expected -$45B, prior -$44.4B
2:00 Fed's Beige Book
11:00 Fed to purchase $1.4b-$1.7b notes in 4 to 5-year range
Global Economics (Time Zone: GMT)
NZD Employment Change
05:00 JPY Leading Index (June)
06:00 EUR German Factory Orders
07:15 CHF CPI
08:30 GBP Industrial and Manufacturing Production
Earnings
Before:
Stifel (SF)
Molson Coors (TAP)
Time Warner (TWX)
HollyFrontier (HFC)
Chesapeake Energy (CHK)
NuSkin (NUS)
Apollo Global Management (APO)
Devon Energy (DVN)
Alpha Natural Resources (ANR)
Starwood Property Trust (STWD)
Nationstar Mortgage (NSM)
Parker Hannafin (PH)
After:
MBIA (MBI)
Symantec (SYMC)
Keurig Green Mountain (GMCR)
Prudential Financial (PRU)
Annaly Capital (NLY)
Gulfport Energy (GPOR)
CF Industries (CF)
MolyCorp (MCP)
Sotheby's (BID)
Dish Network (DISH)
Viacom (VIA)
AOL (AOL)
Thursday, August 7
US Economics (Time Zone: EST)
08:30 Initial Jobless Claims, June 28, exp. 305k, prior 302k
08:30 Continuing Claims - exp 2510K, prior 2539k
3:00 Consumer Credit (June) - exp $18.25B, prior $19.62B
11:00 Fed to purchase $2.05b-$2.5b notes in 7 to 10-year range
Global Economics (Time Zone: GMT)
Japan Investors Purchases of Foreign Stocks/Bonds
01:30 AUD Employment Change
11:00 GBP BoE Rate Decision
11:45 EUR ECB Rate Decision
14:00 CAD Ivey PMI
Earnings
Before:
Cooper Tire (CTB)
Goodrich Petroleum (GDP)
Wendy's (WEN)
Duke Energy (DUKW)
After:
Nvidia (NVDA)
Monster Beverages (MNST)
CBS (CBS)
Lions Gate (LGF)
Medivation (MDVN)
Zynga (ZNGA)
Solarcity (SCTY)
Linn Energy (LINE)
Friday, August 8
US Economics (Time Zone: EST)
08:30 Nonfarm Productivity (2Q prelim) - expected 1.4%, prior -3.2%
08:30 Unit Labor Costs - exp 1.2%, prior 5.7%
10:00 Wholesale Inventories MoM (June) - exp 0.8%, prior 0.5%
Global Economics (Time Zone: GMT)
JPY Trade Balance
CNY Trade Balance
BoJ Rate Decision
08:30 GBP Trade Balance
08:30 GBP Construction Output
12:30 CAD Employment Change
Earnings
PDC Energy (PDCE)
Twitter: @MichaelSedacca
