DON"T LET THE DOWNTURN

Don't let the downturn go to waste.

Now that could be some important investment advice for many.

If it sounds like buy on the dips, in part it is. But on a larger scale it's advice bureaucrats and politicians almost always fail to heed.

When recessions come along, sometimes more often than one would think--just ask Italy, smart people close locations, let others go out of business and cut costs and fat. We said smart people.
We imply, you infer.

Even the most hasty look at the European situation today, notwithstanding the yet to be felt recent Russian counter sanctions, politicians there did next to nothing to benefit from the previous downturn a couple of years ago.

All the world hates austerity. In short, they let it go to waste. And now it might be returning even bigger than ever. The German Dax recently all the rage is now hovering near a 10% decline; we already mentioned Italy; the yield on the 10-year German bund fell to a record low of 1.05%; and the French bond suffered a similar fate.

Lest anyone need be reminded that's not a big 1-2 punch to the economic midsection; it's a big 1-2-3 hit to the EU's three largest economies. Take out some event-driven deals here in the US like M&A and tax inversions and what one is left with is the gloom and doom that the stock market in all of its wisdom these days seems to feed on and apparently loves.

And just for kickers the Japanese market sold off 3% Friday, even though some are saying look to Japan, the UK and, yes, Russia for any overseas value. The Chinese market apparently owing to some upcoming market reforms and some improving economic fundamentals is up around 20% from earlier lows this year.

The other side of that coin is value investors like Buffett and many others report holding huge amounts of cash. In reality, however, it's pretty difficult to find reasonable returns without taking on great risk. Some would say such things are the nature of conundrums.

Rather than chasing anything here, we think a better approach is: Don't let the downturn go to waste.
t. man hatter

Negative 11 for 14

We recently wrote about this in "Three Times But No Charm"

Italy's suffered negative growth since 2011 in 11 of the last 14 quarters as this chart from WolfStreet.com clearly illustrates. As pointed out Italy is the EU's third largest economy. If you were a baseball player 11 of 14 ain't bad. For a country in this case it ain't good.




http://wolfstreet.com/2014/08/06/italys-economic-recovery-from-hell-in-one-chart/

LIKE IT OR NOT

Economics are hard to ignore.

Super bugs are all the rage today and not in a good way.

Regulators can take the medicines out of the market, but despite what people think, it will be extremely difficult to take the economics out of the medicines.

Despite the potential of new antibacterial products to reduce the social burden associated with resistant infections, some of the large companies have been exiting the markets for antibacterial drugs and vaccines in recent years. Arguably these pharmaceutical corporations have also failed to respond to the possible social value of opportunities in production of rapid diagnostic products.

These market exits have been driven by the most basic of reasons: insufficient return to capital invested in development of these products (that is, there are not enough profits to be made). Consequently, governments across the globe are looking to identify ways to stimulate the development of antibacterial products.

There is economics here you might want to know about. According to this report, there were 23,000 deaths in 2013 with at least some connection to antimicrobial resistance. Drugs are like oil--in fact many of them come from oil products--if production costs exceed profits, it will remain untapped.

The same goes for science, like it or not. 

Read more: http://www.digitaljournal.com/science/op-ed-new-usa-body-to-evaluate-antimicrobial-products/article/395973

UPCOMING WEEK

 

On the agenda for next week are two dovish members of the Fed and one hawk who has openly called for raising interest rates. July retail sales and the producer price index might draw some attention given that investors remain nervous after this past week's focus on the Ukraine and other disturbing international new. 

From what we can gather bearish sentiment seems to be spreading even though investors still blew off much of the disturbing news last week that one would ordinarily think might cause some concern. So much bearish sentiment might be a good contrarian indicator since someone is on the other side of the recent sell off.

And there are still lots of investors who believe the market will agitate its way lots higher before the fat lady appears on stage. Talk about 7%, 10% or 20% corrections are almost the norm lately. When everyone seems to be be looking for something to happen, how often does it in reality happen?

Europe remains in a funk and the Ukraine situation most likely won't help. Italy as we wrote in "Three Times No Charm," in back in recession. So Thursday with some global economic reports could prove interesting, too.

Monday, August 11

US Economics (Time Zone: EST)

No major reports scheduled
11:30 Treasury to sell $28b 3-month bills and $25b 6-month bills

Fedspeak

3:15am Fisher (hawk, voter) speaks in Stockholm

Global Economics (Time Zone: GMT)

CNY New Yuan Loans
05:00 JPY Consumer Confidence Index
06:00 JPY Machine Tool Orders (July prelim)
12:15 CAD Housing Starts

Earnings

Before:
Sysco (SYY)
Dean Foods (DF)
Priceline (PCLN)

After:
Nuance (NUAN)
Caesars Entertainment (CZR)

Tuesday, August 12

US Economics (Time Zone: EST)

10:00 JOLTS Job Openings - prior 4635
2:00 Treasury Budget Statement - expected -$96B, prior $70.5B
11:00 Treasury to sell 4-week bills
11:00 Fed to purchase $950m-$1.15b bonds in 22-30 year range
1:00 Treasury selling $27b 3-year notes

Global Economics (Time Zone: GMT)

04:30 JPY Industrial Production (June final)
09:00 EUR Eurozone ZEW Survey Current Situation, Economic Expectations

Earnings

Before:
Kate Spade (KATE)
Insys Therapeutics (INSY)

After:
Fossil Group (FOSL)
Cree (CREE)

Wednesday, August 13

US Economics (Time Zone: EST)

07:00 MBA Mortgage Apps
08:30 Advance Retail Sales (July) - expected 0.2%, prior 0.2%
08:30 Retail Sales Ex Auto - exp 0.3%, prior 0.4%
08:30 Retail Sales Ex Auto & Gas - exp 0.3%, prior 0.4%
10:00 Business Inventories (June) - exp
11:00 Fed to purchase $350m-$450m notes in 5 to 30-year range
1:00 Treasury selling $24b 10-year notes

Fedspeak

9:05am Dudley (dove, voter) speaks in New York
9:20am Rosengren (dovish, nonvoter) speaks in New York

Global Economics (Time Zone: GMT)

JPY GDP (2Q prelim)
05:30 CNY Retail Sales, Industrial Production, Fixed Investment
06:00 EUR German CPI (July final)
08:30 GBP Jobless Claims Change, Unemployment Rate
09:00 EUR Eurozone Industrial Production

Earnings

Before:
Deere (DE)
Macy's (M)
Seaworld Entertainment (SEAS)

After:
NetApp (NTAP)
Cisco (CSCO)

Thursday, August 14

US Economics (Time Zone: EST)

08:30 Initial Jobless Claims, June 28, exp. 295k, prior 298k
08:30 Continuing Claims - exp 2500K, prior 2518k
08:30 Import Price Index YoY (July) - expected 0.8%, prior 1.2%
11:00 Fed to purchase $1.6b-$1.9b notes in 5 to 6-year range
1:00 Treasury selling $16b 30-year bonds

Global Economics (Time Zone: GMT)

Japan Investors Purchases of Foreign Stocks/Bonds
05:30 EUR French GDP (2Q prelim)
06:00 EUR German GDP (2Q prelim)
08:00 EUR Eurozone CPI (July final)
08:00 EUR ECB Publishes Monthly Report
09:00 EUR Eurozone GDP (2Q advance)
12:30 CAD New Home Prices

Earnings

Before:
Advance Auto Parts (AAP)
Wal-Mart (WMT)

After:
JCPenney (JCP)
Agilent (A)
Autodesk (ADSK)
Applied Materials (AMAT)

Kohl's (KSS)
Plug Power (PLUG)

Friday, August 15

US Economics (Time Zone: EST)

08:30 Empire Manufacturing (Aug) - expected 20, prior 25.60
08:30 Producer Price Index Final Demand YoY (July) - exp 1.7%, prior 1.9%
08:30 PPI Ex Food & Energy YoY - exp 1.7%, prior 1.9%
09:00 Net Long-term TIC Flows (June) - prior $19.4B
09:00 Total Net TIC Flows - prior $35.5B
09:15 Industrial Production (July) - exp 0.3%, prior 0.2%
09:15 Capacity Utilization - exp 79.2%, prior 79.1%
09:55 University of Michigan Consumer Confidence (August prelim) - exp 82.5, prior 81.9

Global Economics (Time Zone: GMT)

08:30 GBP GDP (2Q prelim)
13:00 CAD Existing Home Sales

Earnings

Estee Lauder (EL)

Twitter: @MichaelSedacc

Read more: http://www.minyanville.com/business-news/markets/articles/earnings-reports-economic-data-economics-earnings/8/8/2014/id/55643#ixzz39qOG90zf

YOUR RIGHTS GETTING GORED

The much maligned coal companies and coal investors most likely just receive the biggest boost in confidence since David found the stone to put in his slingshot.

We don't know if little David's stone had any coal in it, but history says it apparently made its mark.

Former Vice President Al Gore, the same one who invented the Internet and magically turned millionaire investment guru, and one of his senior partners at their firm, Generation Investment Management, are not content with just bad mouthing coal on its environmental faults.

The message of Gore and Blood in their recent Financial Times editorial, "Economic case for stronger divestment of coal assets," write the following:

"The momentum behind divestment campaigns and other forms of protests against coal highlight that burning fossil fuels without regard for the consequences will not be tolerated much longer."

Fossil fuels is a broad term. It includes more than just coal. Here's a definition from Merriam Webster:

Any of a class of materials of biologic origin occurring within the Earth's crust that can be used as a source of energy. Fossil fuels include coal, petroleum, and natural gas. They all contain carbon and were formed as a result of geologic processes acting on the remains of (mostly) plants and animals that lived and died hundreds of millions of years ago. All fossil fuels can be burned to provide heat, which may be used directly, as in home heating, or to produce steam to drive a generator for the production of electricity. Fossil fuels supply nearly 90% of all the energy used by industrially developed nations.

There's another ringer in here, the kind that Gore and his species are noted for, "burning fossil fuels without regard for the consequences." This is well-chosen designed language. No one in the U.S. is using coal without regard for the consequences. First off that octopus in Washington, the Environmental Protection Agency, loves to levy fines. 

Secondly scrubbers and other federal regulated controls, however effective they might be, have been required for years.

Scrubber systems are a diverse group of air pollution control devices that can be used to remove some particulates and/or gases from industrial exhaust streams. The first air scrubber was designed to remove carbon dioxide from the air of an early submarine, the Ictineo I, a role which they continue to be used for to this day.^[1] Traditionally, the term "scrubber" has referred to pollution control devices that use liquid to wash unwanted pollutants from a gas stream. Recently, the term is also used to describe systems that inject a dry reagent or slurry into a dirty exhaust stream to "wash out" acid gases. Scrubbers are one of the primary devices that control gaseous emissions, especially acid gases. Scrubbers can also be used for heat recovery from hot gases by flue-gas condensation.^[2]

If Gore's and his comrade's view sounds vaguely like a threat, it's because that's what it is.  But then too it could just be some money runners who have short positions on the coal industry. This dynamic duo then cite a list of reasons from EPA regulations to Stanford, the mighty university that several years back in its obedience to PC changed its mascot name from Indians to Cardinal.

It seems the Stanford endowment fund has sworn off publicly listed coal firms. Now we don't doubt the missionary zeal of  Mr. Gore and Mr. Blood. But we do question what are obviously underhanded, cheap scare tactics in what still some believe is--and are trying to preserve--a semi-free society.

Investors last time we looked, notwithstanding the economic moaning of prophets like Gore and Blood, had a right to lose their money anyway they want. That right might not last long if people like Gore and Blood get their elitist way.

Instead of learning about the demise of coal by reading these two prophet's article, you want to read it to learn how to write in a stilted, convoluted, sophomoric style that reflects typical elitism one expects from people like this.
t. man hatter


  



  

OFFICIAL NEWS LEFT STREET NEWS RIGHT

Official news is different from news on the street.

Official news aided by their MSM friends paints a pretty portrait. 

The battle is going well. We suffered only 20,000 casualties today, but the good news is more supplies reached the front uninterrupted. There was, however, one slightly disturbing development: Nobody was there to receive them. Other than that officials feel....under control.

News on the street today is saying what many of us have believed for a while, inflation is back and rising.

Sentiment on the ground isn't meshing with the official data when it comes to inflation.
Despite government numbers showing that inflation remains tame, companies increasingly are expressing worry that it is in the pipeline and posing a threat to profits. 

"Inflation remains a key concern for management," Goldman Sachs strategist David J. Kostin and others wrote in a research note. "Companies noted the potential long-term impact of rising costs on margins despite hedges that reduce the near-term impact on profits." 

Data show that overall, inflation pressures are largely absent from the current economic picture.
The consumer price index rose just 0.3 percent in June, the latest month, while the personal consumption expenditures index has been gaining at just a 1.6 percent pace, both considerably below the targets before the Federal Reserve would begin raising interest rates. There also are few wage pressures, with labor costs up just 0.6 percent in the second quarter and wages tracking at a 2 percent annualized increase.

Luke Sharrett | Bloomberg | Getty Images

A Walgreens store is shown in Louisville, Ky.

But companies are saying that overhead costs like labor and supplies are increasing and putting pressure on margin expectations. That in turn could be concerning for stock market investors, who have relied on margin expansion as the key to the 190 growth in equities since the March 2009 lows. 

 

"Firms in the consumer sectors have already experienced inflationary pressures due to rising input costs," Kostin said. "Conflicting opinions exist as to whether boosting prices on the consumer will help mitigate the effect of rising costs."
In the analysis, the Goldman team cite a variety of companies within the firm's coverage space and their view on inflation. 

There was McDonald's, which has seen food increasing at a 3 percent clip and expects that could rise to 3.5 percent. Big-box retailer Costco reported hikes in seafood, produce and beef. 

Pharmacy chain Walgreen reported "a shift from historical patterns of deflation in generic drug cost to inflation." It noted "cost increases on a subset of of generic drugs, and in some cases, these increases have been significant. Both reimbursement pressure and generic inflation are having an adverse effect on margin." 

Dow Chemical noted that "cost inflation on the U.S. Golf Coast is real" but said it was sufficiently hedged. 
http://www.cnbc.com/id

ANIMAL SPIRITS TAKE ONE

So much silly stuff and so little time to laugh at it all.

We're talking MSM here.

Starting with a story in today's Financial Times, "Without prudence as a value we are all at risk," the author, William R. Rhodes, CEO of  Rhodes Global Advisers and former Citibank executive, opens with:

Financial groups are dialing up risk in their search for yield because of the extraordinary amounts liquidity created by central banks and the prolonged rate environment. This is often not being done prudently. The key cause of past financial crises are being forgotten at many financial institutions.

It should be noted one of the main financial institutions Rhodes apparently leave out is central banks. Rhodes goes on to name such things as something we've mentioned before, subprime auto loans, non-investment grade syndicated loans and corporate emerging market debt.

All soaring and all true. All also occurring in the absence of  very little real growth. He then cites the EU, Japan and the U.S. where "growth over the past 12 months has been less than 2 percent, yet in the same period the S&P 500 stock market index gained about 17 percent."

There is China on the other hand, perhaps the only bright spot if one can digest those statist-controlled economic figures without getting dyspeptic, hitting the government's 7.5% objective, much of it, however, owing to increased credit growth.

End result surfacing bubbles in real estate and an unregulated, increasingly shadowy shadow banking system while mainstream banks continue their lending to government entities.

Rhodes next takes on global money runners in perhaps the funniest sentence in his whole article: "To some degree, they feel the competitive pressures to produce better quarterly results consistently."

We don't know if the well-meaning chap smokes or imbibes much but pressure to produce consistent better quarterly results is hardly new. And boards that don't mind occasionally looking the other direction aren't either. Desperate times don't always lead to quiet desperation. In fact, it can get quite noisy, Janet Yellen pun intended.

Part of Rhodes' solution is he wants central banks to pay more attention to risk behavior. Sounds like more of the usually intrusive, Big Brother approach. Calling for the Fed to use its influence--as if it has any left--to promote "prudence in risk taking as a core cultural value" would get a big laugh in most Comedy Clubs.

This sounds like excellent material for one of those proposed MBA ethics classes once the guffaws quiet down.

Next Rhodes proposes putting the old bureaucratic fox in charge of the financial hen house.

Jointly, leaders of  financial institutions and their regulators in the US, UK, Japan, the eurozone and in China, should emphasise the importance of risk management and risk culture. They should come together to exchange views candidly and explore ways to channel risk activities onto a surer course.

With all due respect, someone needs to ask Rhodes this question: When animals get hungry, what do they want to do? 
t.man hatter

OUR VIEW

A lot of people, to use a kind term, probably don't like billionaire fund manager Paul Singer.

And it's a fairly safe bet he won't be booking passage to Argentina anytime soon. Or for that matter the Republic of the Congo or Peru.

Singer, using his middle name, is the founder of the now $24 billion Elliott Management. His recent protracted fight with default-loving Argentina over some so-called sovereign bonds put him centerfold in the hedge fund world of late. It wasn't his first financial rodeo and if if he lives long enough it most likely won't be his last.

It's a long, twisted and complicated story that has nothing to do with the good people of Argentina and everything to do with staggeringly incompetent leadership, the kind most Americans are becoming more and more familiar with as the days dwindle down to November.

Here are some quotes from the nearly 70-year old fund manager we not only like but fully endorse.

"Resentment is not morally superior to making money," he said during the Occupy Wall Street charade.

On the Federal Reserve he wrote it was run by "a group of inbred academics." who have "lost any semblance, any wispy remnant of humility."

On the U.S. and Europe he noted both are 'headed for mass poverty and degradation of freedom." That's an argument Singer won't get much push back on today in many quarters.

In the 1930s FDR confiscated gold. And over the years via various and often nefarious ruses like eminent domain rules government has confiscated lots of properties. Singer noted "It's not out of the realm of possibility" today either.

It's not just so-called Third World banana republics, though some believe that's the real next stop on America's future ride once the Piper gets fully paid for all the incompetent leadership and bureaucratic nonsense fostered by academics trying to swim in waters way over their heads.  

To borrow a couple of words made famous more than 40-years ago and remain so today by the late writer William Manchester, these are the "nattering nabobs" of academe. Trust them at you're own peril. When they finally grow up, if they ever do, most hope to find real jobs.

Earlier this year he wrote that society itself might be undermined by a nation "disdaining the rule of law and paying whatever it wants to pay." If that reminds anyone of Argentina's recent attempted scam, someone say, Hello!

To be sure, the Singer haters periodically come out in force, most of them academics. Much of Singer's apparent ideas because they center on individual responsibility and economic choice grate against the equal outcomes crowd.

You recognize these folks. They either teach, become bureaucrats or run for public office.

That's our view. We hope you know yours.
t. man hatter

AROUND THE WEB

1. Another thing we cannot necessarily count on is the remarkable geopolitical stability that the world experienced for two long stretches during the fossil fuel age. The first one lasted from the end of the Napoleonic Wars in 1815 to the beginning of World War I in 1914 (interrupted only by the brief Franco-Prussian War). The second lasted from the end of World War II in 1945 until now.
http://resourceinsights.blogspot.com/2014/08/bubble-time-friends-and-relatives-act.html

2. In his announcement to the world of the latest round of US sanctions against Russia, President Barack Obama attempted to sooth business fears by stating categorically that the spill-over on U.S. companies and those of its allies would be “limited.”
http://wolfstreet.com/2014/08/07/the-old-continents-road-to-ruin-through-moscow/

3. Barack Obama has authorised military airstrikes over northern Iraq in order to “prevent genocide” carried out by Islamist extremists against Christians and other minorities.
http://www.blacklistednews.com/Barack_Obama_approves_airstrikes_in_Iraq/

4. The only thing that can stop it is oil prices,” according to the CEO of Pioneer Natural Resources referring to what he called would be “a tremendous turndown” or collapse in prices.

Speaking at a meeting this week in Denver, Scott Sheffield, told the conference the real peak owing to technological advancements could be around 14 million barrels a day. That's a significant difference from the 9.5 million barrels a day that government forecasters have suggested about U.S. oil production in 2016.
http://fuelfix.com/blog/2014/08/06/pioneer-ceo-us-oil-production-could-hit-14-million-barrelsday/

5. A new study from the Brookings Institution, a Washington think tank, argues that using solar and wind energy may be the most expensive alternatives to carbon-based electricity generation, even though they require no expenditures for fuel.

The paper, by economist Charles Frank, compares the benefits and costs of renewable energy. The benefits range from the lack of emissions to the savings in expenditures for fuels. The costs include the construction and maintenance of these plants, and the drop in power generated when winds are calm or the Sun doesn’t shine. http://oilprice.com/Latest-Energy-News/World-News/Solar-And-Wind-Power-More-Expensive-Than-Thought.html

6. Steve Forbes: One is the economics profession knows less about money than it did a hundred years ago. And they and others have a vested interest in currency instability. Currency trading, now the volume on a daily basis, is over three trillion dollars.

BGG: Currency trading?

Steve Forbes: Currency trading.

BGG: Wow. Just people changing money back and forth trying to get an edge. It’s a huge, huge business. But it’s not really a business.

Steve Forbes: No, gold would put it out of business. They could do something useful, like medical research.
http://www.mining.com/web/sinning-federal-reserve-undermining-the-dollar-steve-forbes/

A LOOK AHEAD

One of the hot stories making the financial page rounds today involves billionaire bond guru Jeffery Gundlach.

Gundlach was one of the few bond fund managers who called ahead of time the falling interest rate scenario that caught many off guard this year.

But Gundlach in an interview with the Financial Times wasn't looking back singing his own praises. He was scouting out 2020. 

"A lot of things seem to be pointing to the year 2020 as an interesting time-frame," the Times quoted the founder of Double Line, the fund he started in five years ago from scratch that now controls $50 billion.

In short, what Gundlach apparently sees, given all the economic overhangs, from soaring federal deficits to aging populations to the Fed's maturing bond holdings, is what some might label as the second resurrection. In other words, a second round of more QE.

"It seems like one of the consequences of this zero interest rate policy is you've pushed out the problem of refinancing, of rolling over, but you've really compounded the magnitude of it and it seems to be focused around 2020."

In case you don't recognize it, in our view, this is another metaphor for the Piper. Kick the can is a great game, but the Piper has to be paid, one way or the other.

Another one Gundlach's points is the recent 4% second quarter number for the U.S. that MSM, as is their wont, went back-flipping over was bloated "by inventory stocking."

He noted he'd be surprised if 2014 U.S. GDP exceeded 2%
t. man hatter