Month: August 2014

Presented with little comment aside to note Biotechs are up 33% from the April lows and have reached all-time record highs and have now totally ignored 2 warnings from Yellen – who just last week was heralded as omnipotent.

This is the best 3-week run in 13 months…

via Zero Hedge http://ift.tt/1pDvEkY Tyler Durden

Submitted by Simon Black of Sovereign Man blog,

A few days ago I had a conversation with the Chief Operating Officer for our agricultural fund in Chile.

We were discussing water, and he told me that roughly 60% of California right now is suffering “extreme drought” conditions. 30% of the state is in “severe drought”. And 10% of the state is only under “drought”.

In other words, roughly the entire state – the 8th largest economy in the world – is facing a severe shortage of water.

But if you think that’s bad, China is about to take over the spotlight yet again.

A study by China’s Ministry of Water Resources found that approximately 55% of China’s 50,000 rivers that existed in the 1990s have disappeared.

Moreover, China is over-exploiting its groundwater by 22 billion cubic meters per year; yet its per-capita water consumption is less than one third of the global average.

This is astounding data.

More than 400 major cities in China are short of water, with some 110 facing “serious scarcity”.

Beijing and other northern cities get most of their water from underground aquifers. Over the last five decades, China has had to drill increasingly deeper to gain access to water.

Another challenge China faces is logistics. More than 60% of China’s water is in the southern part of the country, but most of the usage is in the north and along the coastlines.

When you consider that this is a country that has almost one fifth of the world’s population and is soon to become the world’s biggest economy, this is rapidly becoming a global problem.

The Chinese are of course well aware of this and are trying to mitigate the consequences by diversifying internationally, or as I call, planting multiple flags.

In China’s case, it’s a ‘water flag’.

Since the most efficient way to save water is not to use it, a sensible strategy is to import water-intensive goods and commodities. Corn and wheat are great examples.

China has been acquiring land across Africa and South America; last week when I was in Ethiopia, the place was crawling with Chinese delegates in the ag business.

The goal is to increase China’s food supply, reduce its dependence on the US for grain imports, and reduce its domestic water demand.

China has the economic capacity to do this. Most nations don’t.

Globally, some two billion people face a water deficit, and dozens of countries have to import water.

Throughout history, water has been the most important resource in the world and a major cause for conflict.

As far back as the ancient Sumerians, wars would break out over control of water supplies in Mesopotamia.

Today, 47% of the world’s non-polar land mass is supplied by rivers shared by two or more states simultaneously. This is an always present but latent source of potential conflict.

We can see that in South East Asia where the Mekong countries bicker over who has the right to build dams and otherwise exploit the river.

All of those countries, plus Bangladesh, India and Myanmar are furious with China’s plans to commandeer more of upstream river sources for itself.

In Ethiopia, where I was just a few days ago, the Grand Ethiopian Renaissance Dam project on the Blue Nile is causing a major diplomatic row with Egypt.

The Egyptians see themselves as the historical “rightful owners” of the Nile River, and they’re in desperate need of the water.

Water availability has enormous political, military, economic, and social implications. And it’s foolish to simply sweep this reality under the rug.

My guess is that tens of thousands of our readers may live in a city experiencing severe water shortages. It’s easy to ignore the problem and trust politicians to fix it. But this is a dangerous course of action.

First of all, stock up. Water keeps, so you won’t be worse off for having a little extra in case there’s a small disruption.

Bigger picture, it may make sense to consider a small bolt hole in a country with abundant per-capita water resources (Georgia, Uruguay, parts of Chile, etc.)

And for investors, owning productive agricultural property in these locations will likely prove to be an excellent investment as farmland in many parts of the world dries up.

More on that another time.

via Zero Hedge http://ift.tt/1pDvE4o Tyler Durden

A few days ago, when we looked at what is one of the last tax havens in the world, the principality of Monaco, we uncovered not only the world’s most expensive Penthouse costing a whopping $400 million, but got some perspective on how far one’s dollar really goes, or doesn’t. Because when it comes to asset inflation there is a world for the “rest of us”, where according to Janet Yellen “inflation is noisy” and any spikes should be ignored, and one for the 1%, where inflation is essentially off the charts. In fact, a world where as the following anecdote fiat prices hardly matter.

Case in point: if a billionaire has a measly $1 million burning a hole in their pocket, they have a choice: they can spend it in Monaco where, “for $1 million, you could buy about 15 square meters (160 square feet) of space” or they can spend it in Wall Street’s favorite summer retreat, the Hamptons, where the seven figure number would buy them… a trailer.

As the NYT reports, via Gothamist, a family just sold their trailer in Montauk for a million dollars. 

The transformation of the whole of the east end of Long Island into a 1% paradise is something remarkable. The Times traces how just a few years ago Montauk was still something of a well-off worker’s paradise, replete with drunken firemen and cheap crash pads. But now even Jimmy Buffett has been unsuccessful in purchasing a trailer in Montauk Shores, which sits at the very edge of Long Island.

“It was the Wild West back then,” Cherie Doughan, one of the former trailer owners, told the Times. “Or I guess you’d call it the Wild East. People sure knew how to party.”

Doughan recalls her father sitting in a bathtub in their front yard, beer in hand, inviting passersby to join him for a dip.

“I hate to sell it. I don’t want to sell it, I just don’t, but there it is,” Doughan said, explaining that they need the money to help pay for her mother’s assisted living home.

Of course it is not the motor home itself that is being acquired, it is the land beneath it:

With dark wood paneling, two stuffy bedrooms and an intact 1970s kitchen, the Doughans’ mobile home will almost certainly be replaced. The new owners will be basically buying the land, paying more than 100 times what Mr. Doughan did, for one of the primest parcels in Montauk Shores.

 

It may not be one of the plots directly on the bluff over Ditch Plains, but it is on a larger, 2,000-square-foot lot, with room for a double-wide mobile home and a new deck, a luxury the narrower waterfront parcels, each 1,200 square feet, do not enjoy. The added space can mean a lot to someone willing to pay seven figures for a beach retreat. And the Doughans’ plot still has unobstructed ocean views, out over a plaza in the center of the park.

So $1.1 million for a 2,000 square foot lot? “Insanity”, most people will interject here: this is such a clear signal there is an epic bubble that the only question is when does it burst.  Well, sure. But others are trying to spin even this:

While residents insist the general vibe of the mobile home park hasn’t changed, the idea of someone who could afford a $1.1 million dollar parcel of land on which to build a new trailer seems to negate the vibe of a blue collar paradise. Not so, according to the Corcoran real estate agent quoted in the piece: “If you think about it, it’s still one of the best deals on the East End,”

And now, for all those who wish to be able to afford such “best deals” in the future, back to BTFATH.

via Zero Hedge http://ift.tt/1tRuK3t Tyler Durden

Submitted by Jeffrey Snider of Alhambra Partners via Contra Corner blog,

In the rush to make QE’s taper and the follow-on “forward guidance” appear more data-related than of due concerns about the structural (and ultimately philosophical) flaws in the economy, the regressionists of the Federal Reserve have come up with more regressions. The problem was always Ben Bernanke’s rather careless benchmarking to the unemployment rate. In fact, based on nothing more than prior regressions the Fed never expected the rate to drop so quickly.

Given that the denominator was the driving force in that forecast error, the Fed had to scramble to explain itself and its almost immediate violation of what looked like an advertised return to a “rules regime.” When even first mentioning taper in May 2013, Bernanke was careful to allude to the crude deconstruction of the official unemployment as anything but definitive about the state of employment and recovery.

So at Jackson Hole last week, Bernanke’s successor introduced the unemployment rate’s successor in the monetary policy framework. Janet Yellen’s speech directly addressed the inconsistency:

As the recovery progresses, assessments of the degree of remaining slack in the labor market need to become more nuanced because of considerable uncertainty about the level of employment consistent with the Federal Reserve’s dual mandate. Indeed, in its 2012 statement on longer-run goals and monetary policy strategy, the FOMC explicitly recognized that factors determining maximum employment “may change over time and may not be directly measurable,” and that assessments of the level of maximum employment “are necessarily uncertain and subject to revision.”

Economists inside the Fed (remember, these are statisticians far more than anything resembling experts on the economy) have developed a factor model to determine what Yellen noted above – supposedly they will derive “nuance” solely from correlations.

A factor model is a statistical tool intended to extract a small number of unobserved factors that summarize the comovement among a larger set of correlated time series.2 In our model, these factors are assumed to summarize overall labor market conditions. What we call the LMCI is the primary source of common variation among 19 labor market indicators. One essential feature of our factor model is that its inference about labor market conditions places greater weight on indicators whose movements are highly correlated with each other. And, when indicators provide disparate signals, the model’s assessment of overall labor market conditions reflects primarily those indicators that are in broad agreement.

Below is their list of the 19 factors included in that statistical conglomeration, the LMCI:

.
Of the nineteen, there are an inordinate number of surveys to go along with the more traditional statistical figurings like the unemployment rate and private payroll employment. What is conspicuously lacking is any measure of income. In fact, of those nineteen only one refers to wages at all and that is the average hourly earnings rather than a more comprehensive measure of earned income. And, as you will note from the far right column, the calculated correlation of the wage figure is the third lowest of the data set.

What does this mathematical reconstruction of the labor market tell us about the labor market? If you believe the figures, this has been one of the best recoveries on record. No, seriously:

From December 1982 until the official economic peak in July 1990, the Fed’s new tool for nuance gained a total of 319 index points, or an average monthly change of 3. That was during what was an unequivocal and inarguable recovery and robust expansion (we can debate how much of it was artificial, particularly later in the decade, but there was no debate, as now, that economic growth was there).

By comparison, the LMCI shows a total gain of 290 points from July 2009 through what are apparently the latest estimates at the end of Q1. On an average monthly basis, the index in this recovery gained 5 per month, besting by a wide margin the 1982-90 expansion.

The reason for that is the unemployment rate. The Fed helpfully breaks down the contributions to changes in the index and, unsurprisingly, the three largest factors driving this epic recovery in jobs nuance are the Establishment Survey, the estimate of jobless claims and, somehow, the unemployment rate. Those statistical oddities, more than any assurance of actual growth and recovery, actually offer up confirmation bias directly within the index creation.

The idea, as Yellen more than suggested last week, was to try to get a handle on labor market slack without “rewarding” the deterioration in labor participation that is inarguably skewing labor perceptions as far, far too positive. So they come up with a new “factor model” where the largest positive contribution still comes from the deterioration in labor participation (the pink portions in the chart above).

If the overall impression of the factor model’s comparison to actual growth in the 1980’s wasn’t enough to disqualify its use, then this surely should be. But rest assured, these kinds of regressions are only going to grow in importance in setting monetary policy under the Yellen regime. The amount of math, which behaved so poorly previously, is set to rise exponentially as actual experience with the actual economy is totally replaced via regression and multi-layered statistics.

This will be called a transition from “discretionary” monetary policy under Bernanke/Greenspan to a “rules based” approach. The latter sounds far more appealing given what has transpired, and even to what the Fed is now willing to admit as largely ineffective. However, it still represents the same old problems as rules or not, when setting those rules in the first place it simply re-arranges discretion from less clearly defined to simply setting the variables. And if the discretion and subjectivity in setting the variables is as poorly constructed as this LMCI, then what does it matter this change in the first place? The answer may be simply PR and “confidence” (the full and various meanings of that word).

Of the models in the Fed’s arsenal, however, this labor “nuance” has to be among the least formidable. It almost seems like it was slapped together haphazardly just to fill the void left by the participation problem cutting into the pre-programmed end to QE. But more than that, it displays exactly the basic kind of ignorance you would expect of a group that places mathematics before understanding (if it isn’t a regression equation, it simply doesn’t exist to them).

Even if the model represented a somewhat realistic assessment, it stills doesn’t tell us much about the actual economic trajectory. By focusing on the beancount raw numbers of these various sub-parts, the FOMC and the orthodox economists using this construction will over-emphasize the most cursory of the labor market aspects – the numerical number of jobs. That, as we well know today, is not much use where the economy is being transformed by “some” structural shift. In other words, the model will count as “good” the replacement of high-value productive jobs with low-value “asset inflation” service jobs (ie, the bartender economy), seeing recovery where only persistent drain exists.

The emphasis on the short run and the persistent appeal to generic activity leaves these mathematicians blind to what a real economy consists of – wealth and the valuable trade of labor for work in productive action. Nowhere does income, the true measure of economic strength, penetrate this moribund monstrosity. That is how this measure can look at the labor market post-2000 and see it as equal or better than what came before.

Back to Yellen:

Second, wage developments reflect not only cyclical but also secular trends that have likely affected the evolution of labor’s share of income in recent years. As I noted, real wages have been rising less rapidly than productivity, implying that real unit labor costs have been declining, a pattern suggesting that there is scope for nominal wages to accelerate from their recent pace without creating meaningful inflationary pressure. However, research suggests that the decline in real unit labor costs may partly reflect secular factors that predate the recession, including changing patterns of production and international trade, as well as measurement issues. If so, productivity growth could continue to outpace real wage gains even when the economy is again operating at its potential.

That is just nonsense – the only way “productivity growth could continue to outpace real wage gains” is under a system of financial repression that substitutes debt for wealth. In other words, nominal redistribution via massive credit production is exchanged for actual economic advance, but since the orthodox practitioner can’t tell the difference (monetary neutrality, after all, must be preserved no matter how much incoherence and convolution is needed to maintain it) it leaves behind all these mysteries in “need” of mathematical solutions, including so many poorly suited to the ideals.

via Zero Hedge http://ift.tt/1pdPvb8 Tyler Durden

The popular view concerning the Fed is that it is apolitical. Anyone who considers the timing of the Fed’s actions knows this is false. However, for the vast majority of Americans, including financial professionals, the Fed is thought to be an apolitical entity focusing exclusively on economic and financial matters.

 

The first indication that this was inaccurate occurred during Bernanke’s reappointment as Fed Chairman in 2009. The media tried to claim that Bernanke was the savior of capitalism, but the fact of the matter was that there was strong opposition to his re-appointment. After all, Bernanke had not only missed the crisis but had in fact repeatedly stated it was contained.

 

From a competence perspective, Bernanke should not have been reappointed. He had an abysmal track record and had in fact allowed the entire financial system to nearly implode. Small wonder then that numerous members of Congress were against his reappointment.

 

During this period, an intense lobbying effort was made on Bernanke’s behalf. Lost amidst the bustle of articles concerning this situation was the following tidbit:

 

I was advised that rejecting [Bernanke's] nomination would cause markets to nose dive, which would hurt retirees and families saving for their future. I am not enthusiastic in my support. " – Senator Barbara Mikulski (D- MD)

 

Here is a US Senator who was advised that not reappointing Bernanke would mean a collapse of the markets. The argument was financial in nature, but it is clear that the Fed was no longer an apolitical body. Bernanke was another political figurehead, who needed support in order to retain control.

 

Barack Obama reappointed Bernanke as Fed Chairman in August 2009. Obama had made a point of disparaging the Bush Presidency for leaving the US economy in shambles during his election and the initial stages of his first term. So it is of note that Obama decided to reappoint Bernanke, who, as Bush’s Fed Chairman, had been a key player in allowing the Crisis to happen.

 

As this stage, Bernanke’s tenure as Fed Chairman became closely aligned with the Obama Presidency, a fact that became increasingly clear in the lead up to the 2012 Presidential election when numerous Republican candidates, particularly Mitt Romney and Newt Gingrich began to single out the Fed, particularly its then Chairman, Ben Bernanke, as a political issue that needed to be dealt with.

 

Indeed, there is no clearer evidence that the Fed became a political organization than Bernanke’s announcement of QE 3 in September 2012, just two months before the election. This move was a clear and unprecedented political intervention on the part of Bernanke to aid Obama in his campaign for re-election. We know this because:

 

1)   The Fed had only just ended QE 2 a few months before in June 2012.

2)   US GDP growth was 1.7% in the second quarter of 2012, well above the 1.3% from the second quarter of 2011 and only slightly below the 2.0% from 1Q12.

 

Moreover, Bernanke didn’t just launch QE 3 in September 2012; that same month he also promised to keep interest rates at zero through 2015.

 

Regardless of one’s personal views, at this point it was clear that the Bernanke Fed was viewed as a political extension of the Obama administration. This politicization intensified after Bernanke stepped down and Janet Yellen was appointed Fed Chair in 2014.

 

Indeed, the New Yorker notes that Yellen is the most liberal Fed Chairman in recent history:

 

Yellen is notable not only for being the first female Fed chair but also for being the most liberal since Marriner Eccles, who held the job during the Roosevelt and Truman Administrations. Ordinarily, the Fed’s role is to engender a sense of calm in the eternally jittery financial markets, not to crusade against urban poverty.

 

http://ift.tt/1A1swTM

 

Yellen has even touted her version of liberal social justice in speeches. She recently stated that the Fed should continue its accommodative policy even AFTER the economy is back on track:

 

"And so even when the headwinds have diminished to the point where the economy is finally back on track and it's where we want it to be, it's still going to require an unusually accommodative monetary policy," she is quoted as saying in the article that stresses Yellen's role as public servant.

 

"I come from an intellectual tradition where public policy is important, it can make a positive contribution, it’s our social obligation to do this," she says in an online version of the article. "We can help to make the world a better place."

 

http://ift.tt/1BZq6pU idUSKBN0FJ1I820140714

 

We realize we’ve covered a lot of ground here. So we want to do a brief recap.

 

1)   The Fed, which is supposed to be apolitical, has become increasingly politicized in the post-2008 era.

2)   This politicization has intensified in recent years to the point that former Fed Chairman Bernanke actively boosted the economy with QE 3 to help the Obama administration’s reelection bid.

3)   Today’s Fed is openly political in its monetary views on social justice.

 

In this light there has been a recent shift in political attitudes towards the Federal Reserve. That shift finds Congress pushing to crack down on the Fed’s monetary policies… particularly the fact that the Fed never has to answer to anyone.

 

New legislation is being introduced to make the Fed accountable to Congress.

 

So it is good news that today the ‘‘Federal Reserve Accountability and Transparency Act of 2014” was introduced into Congress. It requires that the Fed adopt a rules-based policy…

 

Thus the rule would describe how the Fed’s policy instrument, such as the federal funds rate, would change in a systematic way in response to changes in the intermediate policy inputs, such as inflation or real GDP. The rule would also have to be consistent with the setting of the actual federal funds rate at the time of the submission.

 

The Fed, not Congress, would choose its Directive Policy Rule and how to describe it.  But if the Fed deviated from its rule, then the Chair of the Fed would have to “testify before the appropriate congressional committees as to why the [rule] is not in compliance.”  The Comptroller General of the United States would determine whether or not the Directive Policy Rule was in compliance and report to Congress.

 

http://ift.tt/1qH78yU

 

This represents the beginning of something BIG for the Fed. The actual process will months. But we need to be aware of this change because it would greatly rein in the Fed’s actions going forward. Given than the Fed is the driving force for the capital markets and risk today, this issue is of major import.

 

This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://ift.tt/170oFLH.

 

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

 

via Zero Hedge http://ift.tt/1zzDi0t Phoenix Capital Research

“Utility disconnection is always considered a last resort, obviously because of consequences for households,” but as Detroit News reports, but water-providers can expect more controversy, as a month-long moratorium against shutting off water for those behind on their bills expired last night. Halting service to people that don’t pay generate outrage among not just Detroit residents but a wider audience who proclaim ‘water should be a right‘. However, as one utility director noted, “We’ve seen a lot more payments…They need that little kick in the pants to get in here and do it.” Water industry experts say cities with high delinquency rates sometimes have few other effective options for getting customers to catch up on their bills. Roughly half of Detroit’s 170,000 customers were delinquent as of last spring.

 

Water utilities in Detroit can expect more controversy as Detroit News reports,

…a monthlong moratorium against shutting off water for those behind on their bills expires at the end of the day Monday.

 

Crews are set to resume water shutoffs Tuesday after weeks of promoting how residents behind on their bills can get on a payment plan or get help paying.

 

Other Metro Detroit cities, facing a financial pinch from unpaid bills, have gotten results by halting service to people who don’t pay.

With some success…

“Last summer, we shut it off for the first time ever,” Square said. Service was stopped to 150 homes, and 350 other customers paid up to avoid being cut off.

 

The result: Hamtramck’s water fund now has a $1.8 million surplus, Square said.

 

“We’ve seen a lot more payments,” said Randall Blum, Eastpointe’s finance director. “They need that little kick in the pants to get in here and do it.”

But [shutting off water], which has produced some positive results,
generated outrage among some people in Detroit and beyond, who say
access to water should be a right

But as the companies themselves note, its simply not viable…

“It’s not viable to let paying the water bill come to be seen as an option,” said Tom Curtis, deputy executive director of government affairs for the American Water Works Association, which represents more than 4,800 water systems nationwide.

 

“The utilities have an obligation to the broader city to make sure the utility is viable and sustainable to serve all the residents and business,” Curtis said. “You can’t let uncollected bills go on and on without a significant consequence.”

 

Utilities have fixed costs, and someone must help cover those expenses to maintain service, said Bob Raucher, who studies the economics of water for Stratus Consulting of Boulder, Colorado.

 

“There’s so much neglected infrastructure and so many regulatory requirements that the problems are compounding. If they aren’t selling water and people aren’t paying their bills, they still have these fixed obligations,” said Raucher. “It’s a real conundrum everywhere. Detroit is an extreme case.”

The numbers remain high…

In a release Monday, the department said about 24,400 residents are on payment plans.

 

Detroit suspended water service to nearly 17,000 residents from March to late July, when officials temporarily halted shut-offs.Many of those whose service was cut brought their accounts up to date quickly, and their water was restored.

 

Detroit’s average residential delinquency is $540 and the average monthly household bill is about $75.

 

Roughly half of Detroit’s 170,000 customers were delinquent as of last spring.

 

…

 

“We give customers a certain amount of leniency in their bills,” said spokeswoman Sarah Holsapple.

 

“Of course, if they haven’t paid after a certain amount of time, we’d have to shut off their water. That’s our absolute last resort.”

*  *  *
Free water is a right? And so are 49ers season tickets… oh wait.

via Zero Hedge http://ift.tt/1zzDgWy Tyler Durden