EURO STRENGTH

Concerns about the strength of euro in the absence of inflation crop up again as French President Hollande noted earlier today, according to Reuters.

 French President Francois Hollande said on Thursday low inflation in Europe and an overvalued euro threatened a protracted stagnation, and called for an early euro zone summit to coordinate pro-growth measures.

"The recovery is too weak. Inflation is too low. The euro is too high," Hollande said at an annual ambassador's conference.

"Europe is threatened by a long and possibly interminable stagnation if we do nothing."

Hollande said pro-growth reforms France had already taken "cannot work unless all of Europe is mobilized also."

"At the side of monetary policy, there must be a budgetary policy which must play an important role to take into account situations, exceptional circumstances," Hollande said.

"The rhythm of deficit reduction must be compatible with growth goals and weak inflation."

This was Hollande's latest comment since shaking up the government over last weekend when he shuffled his cabinet in a new effort to revive France's sick and stumbling economy. Critics are calling for an end to any austerity emphasis and more pro-growth action.

The euro has remained stubbornly high in the face of efforts throughout the EU to stimulate more inflation which remains well below the official target rate of two percent.

In other European news the situation in the Ukraine apparently worsened as claims of Russian troops entering the country hit the airways. Coupled with the latest reports from the eurozone's consumer confidence index that dropped in August to 100.6 from July's 102.2 and the gloom continues to spread. Economists were expecting a number closer to 101.5.

Other reports have suggested sanctions are starting to squeeze Russia and the EU, adding to what many feel is further hurting an already feeble situation with unemployment in Germany, the EU's largest economy, still at 6.7 percent.

THE FRENCH CONNECTION

t. man hatter
With a "forty-year history of nearly unbroken deficits," the term instant results should never even be in the discussion.

And that's the problem all reform movements share. It took 40 years to get it this screwed up, but critics want it fixed pronto and without any pain or discomfort. As someone once put it: New ideas don't go down easy.

A wise old gentleman and statesman named Benjamin Franklin, a guy who had some apparently fond French connections, was noted for many things, one of which is the saying: "A stitch in time save nine." 

That's the problem with France and a whole lot of other countries around the globe including the United States. Nobody wants to pay the piper on time. And France is only one of a gaggle of classical, historical examples.

But you don't have to look at France and their current political-social turmoil. Take a look at Mexico and its relatively new government's struggles to evoke change.

Mexican President Enrique Pena Nieto took office less than two years ago bringing with him, according the Financial Times, a "game-changing agenda which includes flinging open the energy sector to private investment after nearly 80 years under a state monopoly, forcing competition in a telecom market dominated by mogul Carlos Slim, as well as education, labour and financial reforms."

After a first rough year when much of the global economy was still under weather, the Mexican economy appears to be picking up some oomph. In the interim Nieto won international praise for his "gutsy" moves. And the big ratings firm Moody's has a scheduled conference with the catchy title, "Mexico's debut in the big league."

So what do you suspect Nieto's popularity ratings are?  If you answered not great, you're just a kind soul who likely gets most of his news from your local throwaway. According to a recent Pew Research Center survey, 67 percent of Mexicans "are unhappy with the way things are going and many resist change."

Are you surprised?  Though much of the disappointment centers on Mexico's poor results in Nieto's first year in office when the economy grew only 1.1 percent, people remember and expect his 2012 promise to bring 5-6 percent GDP growth.

There's an old business saying about giving more than you promise if you want to be successful. After all these years, apparently it's one bureaucrats and politicians have yet to learn.

It also contains a deep lesson about deficits seemingly too subtle for many to understand.

HISTORICAL BULL

 
One of the arguments people like Wharton Finance professor Jeremy Seigel, a perennial bull who if he gets any more bullish given his long record, could replace the bull statue just outside the New York Stock Exchange, is this statement given today on CNBC.

 So, the 10-year goes from 2½ to 3—and maybe even 3½—that's still extraordinarily low from any historical (perspective). And that's why, again, stocks have that wind of the interest rates going with them no matter when the Fed starts tightening."

It should be noted here how often bulls like Seigel like to recite historical norms when they buttress their position. Now we're neither bull nor bear.The market is what it is until it decides to be something different.

Yet unless we misconstrued Fed Chair Yellen's recent mincing of words act at Jackson Hole, she noted that the labor market was indeed different this time. Different from what? Historical standards. 

Assuming she's correct, a position many bulls take, one could postulate why would the labor market be different from the interest rate market? And why would historical standards apply here but not there?

Lowering interest rates is designed to pump up consumption. Pumping up consumption is designed to pump up the economy. And pumping up the economy is supposed to create jobs. Yellen's point, as we understand it, is the jobs have not readily shown up because it's different this time.

So despite Seigel's claim to the contrary, going from 2.5% to 3.5% yield on the 10-year Treasury, irrespective of coming off historical lows, might indeed be different this time. And an S&P 500 with earnings at $120 at 2,000 trading at 16.5 earnings might not turn out to be so cheap after all.
t. man hatter 

NO BUSINESS LIKE NO BUSINESS

t. man hatter

"Cutting deficits without growth is the worst time to do it," some pundit was quoted in today's Financial Times in French President Francois Hollande's latest brush with reality.

The quote is just another example why the globe should leave the French to their misery. In the pathetic world of politics, there is never a good time to cut deficits. It's too painful in hard times, they say, and when things get better they don't need to be whacked. So the old game of economic musical chairs continues.

This is hardly unique to France. But the French are mostly likely just better at it than, say, even Italian or Spanish or American politicians. The first part of the pundit's quote is: "France's problem is we have not been credible for so many years (on fiscal policy)," and you thought the British were masters of  understatement.

Much of the recent uproar is about known French loudmouth Arnaud Montebourg's weekend comments in announcing his resignation as economy minister. Montebourg leveled his criticism, in what some believe was a not-so-veiled slur at Germany, that the EU's fiscal stance was causing "unnecessary prolongation of the economic crisis and the suffering of the European population"

There is nothing like good politically-based emotion to rile folks up. The Times describes Montebourg as "both sharp and tirelessly ambitious--among other things, he makes no secret of his goal to one day become French presidient," just the kind of bloke one wants running its affairs. 

Montebourg is anti-business, the last thing the people of France need.

OUR VIEW

There are many bad things that come out of Ohio and one of them is Democrat Senator Sherrod Brown.

We know the winters are frigid there and owing to the cold the viscosity of one's blood thickens depriving O2 to the Circle of Willis among other places. Now we have this elected cretin indirectly calling Burger King, as we've written several times before, nasty names.

The suggestion here is anything but subtle. Try what these donkey heads, control freaks love most, unpatriotic. This is another ploy to wipe out a perfectly legal freedom of choice movement that will soon be playing at a venue near you if you cower against these elected tyrants.

Forget White Castle,which during its long history might have clogged more arteries than tobacco smoke and trans fats combined, and Wendy's, a homegrown Ohio outfit. They're just pawns Brown seeks to use if they prove useful, a common tactic among these Congressional freaks.

More important, it shows you Senator Brown's real views about health care. Recent research reveals that today's 20 and 30 year-olds are skipping McDonald's. Isn't that what these food Nazis like certain mayors wanted?  Other new research shows that fast food venues cannot be profitable selling healthy food. It isn't in the cards.

Instead of Burger King, what the good citizens of  Ohio ought to boycott is Senator Brown and sending any more tax dollars than they have to off to that big black hole called Washington, D.C. As a native of the Great State of Ohio, some hallowed ground were both my parents are buried, people like Senator Brown make me ashamed of my heritage.

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

DON"T SLEEP ON ENERGY

                                           t. man hatter
We've written about energy before. Back when it started  its recent run to $115 a barrel we said then that there would be a pullback and we've been getting one.

We also said then that hydrocarbons should be a permanent part of your portfolio. 

This is an energy market running on what some might call a full tank of confidence. Others an empty tank of fear. At present global oil supplies are plentiful, demand owing to economic concerns about the EU, Japan and China, to name a few, looks anemic and market participants for the most part have blown off the risk of geopolitical supply disruptions for now.

In our last "AROUND THE WEB" we posted a link to a Citigroup report essentially predicting the demise of the hydrocarbon world, another feature we like to see.

These should strike you as all the ingredients one looks for to be taking the other side of that trade. We know that Buffett just sold off a chunk of his energy holding and we say so what. Maybe he's just taking a chunk of big profits? For years he's claimed he's not a macro guy. He also owns Burlington Northern railway, a backdoor play on energy anyway you look at it.

Some would suggest its a monopoly to the North Dakota fracking boon, but Buffett has friends in high places, no surprise either. He's also an opponent of the Canadian pipeline that would run through Cornhusker Land.

Deflation fears are so much in the air one could call it the economic land of the the blind, a place as the parable goes where the one-eyed rule. In another link in that same post we listed another, "WHY YOU SHOULD NEVER TRUST ECONOMISTS," that quotes a Nobel Prize winning economist saying: "Anyone who believes in inflation is stupid." 

There are few things more dangerous to one's financial well being than Nobel Prize winning economists. If you haven't learned that by now, well, we again wish you well in your delusions.

Snooze on bureaucrats, politicians and Nobel Prize winning economists. But don't go to sleep on the possibilities to make money in energy.

AROUND THE WEB

1. MORE ON WELFARE THAN WORKING
http://globaleconomicanalysis.blogspot.com/2014/08/40-of-country-on-welfare-obamacare.html

2. A COMPLICATED OIL TALE
http://blogs.platts.com/2014/08/21/texas-oil-drilling/#more

3. SO MUCH FOR HUMANS
http://www.businessinsider.com/robots-as-bosses-2014-8?

4.  KOOKY ECONOMICS
http://www.zerohedge.com/news/2014-08-24/krugmans-keynesian-crackpottery-wasteful-spending

5. FRANCE BEING FRENCH
http://www.reuters.com/article/2014/08/24/us-france-austerity-id

6. BIG G AIDS BIG B
http://www.fee.org/the_freeman/detail/19-big-government-is-a-check-on-big-business

7. WHY YOU SHOULD NEVER TRUST ECONOMISTS
http://www.theguardian.com/business/economics-blog/2014/aug/24/nobel-winning-economists-challenge-conventional-thinking

8. THE SOLAR SIDE
http://oilprice.com/Latest-Energy-News/World-News/Citigroup-Report-Spells-Trouble-For-Oil-Further-Growth-For-Renewables.html

GOLD FROM HERE

Today's there's much talk about wealth transferring.

When it comes to the subject here's one you might not have of thought about and a quote you should read. It could impact your future more than you'll ever know.

“So much gold has already gone from Western vaults to the Far East – China, India – and the Middle East going back to the 1970s’. We probably don’t understand that this is one of the greatest wealth transfers in history. Relative to the amount of fiat currency in circulation, gold is probably as cheap as it was in 2000 or 2001 – incredibly cheap.”
http://www.mining.com/web/if-china-russia-succeed-in-ditching-the-dollar/

We brought up before how back when gold traded in the $300-$500 range Western central banks were unloading the yellow stuff because one of the reasons at the time it wasn't yielding anything. That's exactly what fiat currencies are yielding today, nothing.

Now the fiat money crowd will most likely toss some juicy epithets your way. They could as they usually do when they get desperate even call you something really ugly like unpatriotic, the way they do those corporations that want to take advantage of legal tax inversions deals.

But patriotism is like love, both give me some thrills, but neither one pays my bills. And neither at some point will fiat money when it packs up and leaves town the way bureaucrats and politicians always do. And by the way, these folks ain't going to pay your bills either.

One of the things the above quote tells you is "incredibly cheap" means fiat money is incredibly expensive. On a purchasing power basis it buys you exactly just about what it's worth, next to nothing.

The Fed understands quite well that the U.S. Treasury and Congress need low rates to finance the country's huge debt burden. Higher interest rates are these folks worst nightmare. So the canard for keeping rate so low for so long has been about recovery.

The Fed's worse nightmare is if it has to push interest rate higher than they want, the federal debt burden will explode and what many don't get is coming off these lows, it wouldn't seemingly take much to double that debt burden.

Last week there was a blurb about all popular Russian websites had to officially register with the Russian government. Gold is a competitor with fiat money. Both yield nothing. In fact, if you figure in inflation and taxes on your CD's, checking and cash you're getting negative returns on your paper. 

So what do you think could happen if gold becomes a serious threat to fiat money? And there's another threat to the U.S. dollar most don't want to talk about and when it does come up gets pooh poohed by MSM, the dollar as the currency of international trade.

Forces are at work to change all that. And if and when that happens--and it appears inevitable--things will get really ugly for  the U.S. currency.

The vested interest crowd and the naysayers are everywhere.

Listen to them at your own peril.
t. man hatter

SHOOTOUT AT ECCLES

European Central Bank President Mario Draghi and his band of European Union central bankers are not the only ones feeling pressure to do something.

The news from Jackson Hole's recent conference where Fed Chair Janet Yellen put her mincing words act on display again, according to some sources, there's mounting pressure on the Fed to clarify part of the language they've used to describe their potential rate-hike program.

The Fed meets again next month on September 16-17. One of the terms under question by market participants is the use of  "significant" to describe the amount of slack in the labor market, a description that the Fed has been tossing around for over a month.

Another term bothering investors is the assertion rates will remain low, near zero, for a "considerable time." But even so-called little terminology tweaks now could be dangerous as, in our view, the Fed has painted itself into an increasingly uncomfortable corner.

And we are not alone in that. According to news reports a while ago, Philadelphia Fed President Charles Plosser, a noted hawk, raised the issue at a Fed meeting in July. "The language puts us in a box that I think is not a good box to be in,"  he reportedly told Reuters this week at Jackson Hole.

The objection here is timelines and calendar dates, both of which can created disappointing expectations because no one for sure knows what will happen in the interim. In the quote we read, Plosser mentioned that he preferred "simple data-dependent" guidance.

That's a bit shocking coming from anyone at the Fed, but we'll take it for now. The point is the doves and the hawks are gearing up for what could be a shootout at the old Eccles Corral. 

At this point any tweaking of the language could send shudders into investor portfolios and cause some volatility many of them won't necessarily enjoy. 
t. man hatter

WILL SOMEONE MAKE A MOTION?

t. man hatter

Few want a market that gets ahead of itself since that could put an end to the party these same people are enjoying.

Yet that seems to be the harbinger for what the Janet Yellen-led Federal Reserve is trying to gauge. To use a time-worn analogy, it's sort of like boiling the frog. You start with cool water and gradually keep increasing the temperature. By the time the frog suspects anything it's too late.

Consumption is now 70% of the U.S. economy. But the savings rate is also at the highest its been since this time last year. Predictions for the S&P 500, closing yesterday at 1,988, for 2250 to 2300 by the end of this year are beginning to pop up like spring flowers.

We're not saying it can't happen. There's never a shortage of wishful thinking. Given the contrariness of this market so far it's probably a decent bet. But we are not too concerned with the rest of 2013. At 2,300 before the clock ticks in a new year would most likely cause to us sell without looking into the rear view mirror.

After perusing Yellen's comments yesterday, one thing remains certain. If and when she decides to leave the Fed, she could have a decent future at hedge fund work given all the hedging she did yesterday.  Catchy names like Yellen's Mincing Words Fund keep coming to mind.

Yellen's latest screed revealed the Fed is counting the dots on 19 indicators or LMCI, the labor market conditions index. You gotta love this one. It's something only a bunch of academic economists could conceive.

If 19 indicators doesn't sound like a huge conference table to you, well, we wish you well in your delusions. Conference tables and their members are about as far removed from keeping things simple as it gets. And if history has any value, it's even worse when those seated there are a bunch of academic economists.

Next there's  ECB President Mario Draghi, a presenter at this years conference. It's important to recall these folks don't vegetate in a vacuum. Draghi has an MIT connection that has its own set of academic tentacles.

With unemployment conservatively estimated at 11.5% across the EU, Draghi and his 23 member band of central bankers are in a world of hurt otherwise known as pressure to do something. Apparently, Draghi's never heard the old military stratagem, when one is getting one's butt kicked:

Move forward or backward. Don't just sit or stand there. Do something.

But they probably don't teach that at MIT. Having worked a number of years with professional fighters from the lowest to the higher levels of competition, we've yet to come across one who doesn't understand this simple principle.

Yet elitist view these people as dumb.

Oh well! Just know this, like the ring you're in this on your own. The ring teaches vital lessons. Every time you lose your concentration you up the odds of getting hurt. And whenever you make a mistake there's no delay in the punishment, something that bureaucrats and politicians with all their damage control nonsense never have to deal with.