Are There Lessons We Can Learn From the First Anglo-Afghan War?

Last Monday was the 172nd anniversary of
William Brydon’s arrival at Jalalabad. Brydon, who served as
assistant surgeon
in the British East India Company Army, was
the legend goes
) the only survivor of one of the worst defeats
in British military history, the retreat from Kabul to Jalalabad
during the First Anglo-Afghan War. Thousands of British troops and
civilians who followed their camp were either picked off or
captured by tribesmen or succumbed to the the winter conditions as
they traveled.

Brydon arrived in Jalalabad on a weak horse with a
slashed skull
 on Jan. 13 1842 and said, “I am the
army.” when asked where his comrades were.

The story of the British retreat from Kabul is only one of the
many tales that make up part of the “Afghanistan is where empires
go to die” rhetoric that is sometimes heard in discussions about
the current war in Afghanistan.

In September 2009, Dahr Jamail wrote in
Global Research

The United States Empire is following a long line of empires and
conquerors that have met their end in Afghanistan. The Median and
Persian Empires, Alexander the Great, the Seleucids, the
Indo-Greeks, Turks, Mongols, British and Soviets all met the end of
their ambitions in Afghanistan.

As Seth Jones at the RAND Corporation
pointed out
in a review of William Dalrymple’s Return of a
The Battle for Afghanistan, 1839–42
, “Massive social and
political changes in Afghanistan make it thorny to pull many
lessons from the first Anglo-Afghan war.”

That said, Afghanistan is proving a difficult place for the
U.S.-led forces to manage.
NPR recently reported
that despite billions of dollars being
spent on stopping opium production Afghanistan could still become a
“narco-criminal state,” and today the BBC reported
that while it is unlikely that the Taliban are in a position to
retake control of the country now it is possible that the election
of a weak president could prompt the sort of takeover seen in

from Hit & Run

Rolling Back Zero Tolerance: Oklahoma Edition

pushback against zero tolerance
continues with the Common Sense
Zero Tolerance Act, a proposed bill in Oklahoma. KWTV reports:

Freedom.“Real intent,
real threats and real weapons should always be dealt with
immediately. We need to stop criminalizing children’s imagination
and childhood play,” explained [state Rep.] Sally Kern, Republican
from Oklahoma City.

“If there’s no real intent, there’s no real threat, no real weapon,
no real harm is occurring or going to occur, why in the world are
we in a sense abusing our children like this.”…

House Bill 2351 states schools shall not “punish, humiliate,
intimidate, be condescending to, or bully a student” who has
“possession of a toy weapon.”

It also prevents schools from punishing students “using a finger or
hand to simulate at weapon,” “vocalizing imaginary firearms” or
“drawing a picture of a firearm.”

One common complaint about zero tolerance policies is that
they’re inflexible—that by imposing an absolute prohibition, they
erase the sort of discretion that allows officials to distinguish
genuinely dangerous behavior from harmless play. The Oklahoma
bill’s opponents are trying to turn that argument around, claiming
that Kern’s legislation would do something similar:

[T]he Oklahoma Education Association isn’t on board
with Kern’s proposed law.

“I fully trust Oklahoma educators to handle student discipline in
an appropriate case-by-case manner. The proposed legislation
removes local control from teachers, counselors, administrators and
local school boards. Educators are degreed professionals, trained
and experienced in dealing with children,” explained O.E.A
President Linda Hampton.

The text of the proposed law is
. It’s entertaining reading, because it spells out in
intricate detail just what those degreed professionals would be
prohibited from punishing, from “Brandishing a pastry or other food
which is partially consumed in such a way that the remnant
resembles a weapon” to “Vocalizing imaginary firearms or

Bonus link:5
Ridiculous School Security Scares

from Hit & Run

Corporations Have Record Cash: They Also Have Record-er Debt, As Net Leverage Soars 15% Higher Than Its 2008 Peak

There is a reason why activism was the best performing hedge fund “strategy” of 2013: as we wrote and predicted back in November 2012 in “Where The Levered Corporate “Cash On The Sidelines” Is Truly Going“, US corporations – susceptible to soothing and not so soothing (ahem Icahn) suggestions by major shareholders – would lever to the hilt with cheap debt and use it all not for CapEx and growth, but for short-term shareholder gratification such as buybacks and dividends. A year later we found just how accurate this prediction would be when as we reported ten days ago US corporations invested a whopping half a trillion in buying back their stock, incidentally at all time high prices.

Putting aside the stupidity of this action for corporate IRRs, if not for activist hedge fund P&Ls, another finding has emerged, one that was also predicted back in 2012. Because in addition to still soaring cash mountains, corporations have quietly amassed even more debt. In fact, as SocGen reveals, net debt, or total debt less cash, has risen to a new all time high, and is now 15% higher than it was at its prior peak just before the financial crisis!

From SocGen:

US corporates do indeed hold lots of cash, which is currently at record levels, but they also hold record levels of debt. Net debt (so discounting those massive cash piles) is 15% above the levels seen in 2008/09. The idea that corporates are paying down debt is simply not seen in the numbers. What is true is that deleveraging has occurred through the usual mechanism of higher asset prices (no doubt an aim of central bank policy). This is the painless form of deleveraging. It is also the most temporary, for a simple pull-back in equities and rise in volatility will put the problem back on centre stage.


And while it would be excusable if this debt had gone to prefund future growth, it is a travesty that the only thing companies have to show for it is that it has simply made a few already rich hedge fund managers even richer.


via Zero Hedge Tyler Durden

The #1 Investment Going into 2014?

By: Chris Tell at



What should we expect after eating an exceptionally spicy 3-day-old, reheated “jungle curry” from a Mumbai Street Hawker?


Decisions made when investing, trading, and in fact almost any business all center around the calculation of probabilities. Probabilities for some things are easier to determine than others, which is where I’m headed with my lead question.

We can infer what may happen in the future by looking at the past, but very few people like to look to the past. We know this by simply reading history and watching humans repeat the same errors time and again.

Clearly humans take little notice. Perhaps because history is replete with misery, simply ignoring it makes more sense. More likely it gives people the creeps, being full of the stale breath of the dead, like an old persons home, full of knowledge but depressing nonetheless.

Deciphering the future or forecasting, as far as I can tell, is by and large a con game. A big joke, and very rarely a good game for those buying into the forecasts. It’s a conduit to sell something. The prophet/forecaster needs to only sound convincing, have a cleft chin, be tall in stature, twinkly blue eyes, swagger a little and voila. Don’t say I didn’t warn you.

Most of what I have read already this year amounts to economic porn. What makes sense to me is identifying business people with a knowledge of their own space that exceeds their competition. For example, an experienced farmer is likely better-positioned to know whether he’ll need additional stock feed in the coming year than say the owner of the local burger joint. These people don’t publish forecasts, they run businesses.

Deep down most of us know this. It doesn’t stop most from buying into forecasts. The financial markets are not unlike religions, where prophets seek to lead their followers, and there is no shortage of followers. People love to outsource their thinking to Manila and Mumbai, which is how my street vendor can sell his 3-day-old, reheated “jungle curry”. I told you everything is interconnected.

Saner minds will look to deepen their understanding of any market in which they’ve chosen to participate. This knowledge will, hopefully provide them with insight and a clear edge. If they’re lucky the masses will then follow like sheep.

The probability of a stock going up versus down these days may have less to do with whether the company who issues the stock certificate is profitable or not, and more to do with whether the company has a team of lobbyists in DC. It may also depend upon whether the black boxes on Wall Street like the trading pattern, and ultimately whether QE continues, is increased, tapered or some other genius idea is brought to the fore by our overlords.

Right now I’m ready for anything, including Janet Yellen going completely loopy, biting off the head of a chicken on CNBC, pole dancing naked and threatening “a good time” with anyone who’s interested. Unfortunately she’s likely to do far more harm than that.

We do know that there are consequences to actions. Fundamentals do matter. Much like the probability of a violent and disgusting bowel movement following our reheated 3-day-old Jungle Curry surely outstrips the probability of something similar occurring after consuming a granola bar.

Probabilities exist in the world of finance. There are serious problems, which we’ve discussed in these pages occasionally, not the least of which would be a bond bubble which continues to inflate unabated. A crash would seem to have probabilities not dissimilar to that of giving a 16-year old the keys to your new sports car and a complimentary pub crawl all in one.

That rant behind us, let’s move on to some predictions for 2014. These are worth exactly what you are paying for them. Buyer beware!


Gold, the yen and the dollar

There are many factors at work affecting currencies. Interest rates typically play a major role, though today we live in the twilight zone where market correcting forces have been temporarily suspended. All are intertwined, as one affects the other, which affects the other and so on.

The fundamentals:

  • Gold is and has historically been a medium of exchange, though far less so today than possibly at any other time in history. I don’t care what the gold bugs say, gold is not always and ever something to own. It’s also not necessarily always a store of value. Gold will have its day just as soy, wheat and biotech start-ups will. The question is one of timing and risk/reward.
  • The stock market is largely overvalued and the current bull market is not young, at nearly 58 months in length. Knowing from history that the average bull run is just 29 months, we’re clearly not in a position where the probabilities of more gains lie in our favour.
  • The sovereign bond market was bubblicious a decade ago, yet it continues to inflate with no end in sight. All countervailing forces have been suppressed for the time being. Thanks Ben, Mario and Haruhiko.
  • The currency markets are increasingly volatile and manipulated by sovereigns.

Based on the above you’d be silly not to own some gold, but is it time to trade it for a net long position? Probably not.

Remember that everything is interconnected. Right now we have this insane set of circumstances where central banks are acting in collusion to destroy their currencies and prop up their bond markets, and in all honesty they’re succeeding, at least so far.

Without a valid exit for market participants central bankers can continue to push the limits of absurdity. History shows us that when imbalances have occurred in the past the market has moved to correct those imbalances.

When the Pound Sterling lost ground there was an alternative, there was an exit available for capital. That exit was the USD. Today no such alternative to the dollar exists. It’s not Gold, it’s not Norwegian Kroner, it’s not yet Bitcoin, as none of these markets are deep or liquid enough to take meaningful capital flows. I discussed this very topic a long time ago in a post entitled “Ugly, Uglier, Ugliest”.

Given this setup, and an ever increasing bond bubble, I’m inclined to look to the weakest link in the chain. That link I believe is the Japanese bond market. Their current account deficit has just blown out, revealing a $5.7billion shortfall, the largest deficit in 29 years! The pressure is clearly mounting. Wasn’t Abenomics meant to increase Japanese competitiveness? Oh dear!

Furthermore, I’m inclined to agree with our colleague and trader extraordinaire Brad Thomas, who believes this year will see the yen at 120 IF THINGS HOLD TOGETHER. If not watch out below. Brad’s staggered option trades on the yen, which you can get complimentary here, will soar by much more than the 77% we’re already up from just a month ago. It’s early days, but once again this is simply playing the probability game.

What therefore happens if/when the JGB market finally cracks?

If you’re a fund manager who has to move a few hundred million dollars quickly you need a liquid market, and fast. Money will flood into the US treasury and bond markets. A US dollar rally will happen as a knee-jerk reaction to the panic, and Janet will push the liquidity pedal to the floor…because that’s all the Fed knows how to do!

Check out this dollar chart. Things look ready to pop.

dollar_chartCourtesy of

I don’t pretend to know how gold performs in this scenario, though I do think that being long gold and short yen won’t hurt. It’s a strategy I’ve been employing for a while, and first mentioned here. So far I am about break even. This of course sucks when you’re watching the S&P make new highs and your position sits their like a poodle waiting for a walk!

I’m sticking with it because the risk/reward on the trade gives me comfort. I’m trading one of the cheapest, most fundamentally sound currencies for one of the most fundamentally flawed, expensive currencies. It feels like the safest trade for me, though if you’re a trader you may want to go long USD into 2014 and leg out of the greenback on strength, picking up some more shiny stuff.

Once the market settles down and figures out how the world’s second largest bond market (Japan) got toasted, I think we’ll be in a better position to get long more of the precious metals, including the stocks…in a really big way.

On Tuesday next week we will throw out some other “guesses” for 2014, including updates on Mongolia, Bitcoin and our favourite…private equity (and crowdfunding). Then Thursday we will have a classic contrarian play that we think makes a lot of sense. It comes to us from our friend Mark Schumacher, portfolio manager at Thinkgrowth.


– Chris

P.S. No quote, just a final thought… The second I think I “know” what is really going to happen my ego takes hold. Ego is the death of intelligent, critical thinking investors. Please read this post with skepticism and think long and hard about it. Compare it with whatever else you’re reading on the subject and feel free to throw rocks at my ideas. I could care less about having my theory play out and you won’t damage my ego, trust me. I care much more about being on the right side of a trade. Money talks and BS walks!


via Zero Hedge Capitalist Exploits

Argentine Stocks Soar As Black-Market Peso Hits Record Low (Implies 40% Devaluation)

Argentina is not Venezuela… yet. Following Maduro’s comments yesterday capping Venezuelan profit margins and making black-market FX transactions practically punishable by death (our exaggeration), the Argentine Peso is collapsing…

  • *ARGENTINE PESO FALLS 2.9% IN BLACK MARKET TO RECORD 11.55/USD (Spot is 6.77 – implying a 41% devaluation!

Of course, this is great news for stocks and the MERVAL is surging once again towards all-time record highs (+130% from the beginning of 2013). No news on toilet paper shortages (yet) in Argentina.



It seems Latin America has a lot to learn from Japan… and this wont help

and Argentina Bonds are tumbling once again…


Charts: Bloomberg


via Zero Hedge Tyler Durden

Small Business Warns "Not A Good Time To Expand Substantially"

Submitted by Lance Roberts of STA Wealth Management,



via Zero Hedge Tyler Durden

Small Business Warns “Not A Good Time To Expand Substantially”

Submitted by Lance Roberts of STA Wealth Management,



via Zero Hedge Tyler Durden

Driving While Geeky: Gal Ticketed for Google Glass Takes California Cops to Court

ceciliaCecilia Abadie appeared in court today to contest
a ticket she received for driving while
wearing Google Glass
. The tech entrepreneur was dinged on
October 30 under a California law that prohibits operating a motor
vehicle while “a monitor, screen, or display is visible to the
driver.” She was also speeding.

The case is being
watched closely
 for hints about how courts will treat the
novel tech:

“It’s a big responsibility for me and also for the judge who is
going to interpret a very old law compared with how fast technology
is changing,” said Abadie, who wears Google Glass up to 12 hours a

Adabie says her wearable computer was off while she was
driving—or at least her lawyer says that there’s no way the highway
patrol could tell if itwas on—but let’s be honest: People will be
driving while using Google Glass very very soon, if they aren’t
already. There are about 30,000 headsets in operation right now,
with a broader release expected soon. 

In at least three states—Delaware, New Jersey, and West
Virginia—driving while Google Glassed may soon be explicitly

The Atlanta Journal Constitution reports that all this
is likely the tip of the

Hyundai, the South Korean automaker, is
already integrating technology 
that will allow Google
Glass to interact with its new-generation Genesis sedan. According
to a report, Hyundai’s new Blue Link application will
allow drivers to access service information and start their car
using the eyepiece.

In the end, though, Google (like beer) may be the cause of and
solution to all of life’s problems. The whole thing could be a moot
point in a couple of years when we start getting around in Google’s
self-driving cars
, or at least being shuttled from place to
place in black cabs summoned using our Google Glass via the

Google-funded Uber car service.

from Hit & Run

Precious Metals Manipulation Worse Than Libor Scandal, German Regulator Says

Remember when banks were exposed manipulating virtually everything except precious metals, because obviously nobody ever manipulates the price of gold and silver? After all, the biggest “conspiracy theory” of all is that crazy gold bugs blame every move against them on some vile manipulator. It may be time to shift yet another conspiracy “theory” into the “fact” bin, thanks to Elke Koenig, the president of Germany’s top financial regulator, Bafin, which apparently is not as corrupt, complicit and clueless as its US equivalent, and who said that in addition to currency rates, manipulation of precious metals “is worse than the Libor-rigging scandal.” Hear that Bart Chilton and friends from the CFTC?

More on what Eike said from Bloomberg:

The allegations about the currency and precious metals markets are “particularly serious, because such reference values are based — unlike Libor and Euribor — typically on transactions in liquid markets and not on estimates of the banks,” Elke Koenig, the president of Bafin, said in a speech in Frankfurt today.

Actually, what makes the most serious, is that precisely because they are on liquid markets means they implicitly have the blessing of the biggest New Normal market maker of call – the central banks, and their own “regulator” – the Bank of International Settlements (hello Mikael Charoze).

“That the issue is causing such a public reaction is understandable,” Koenig said, according to a copy of the speech. “The financial sector is dependent on the common trust that it is efficient and at the same time, honest. The central benchmark rates seemed to be beyond any doubt, and now there is the allegation they may have been manipulated.”


Bafin has also interviewed employees of Deutsche Bank AG as part of a probe of potential manipulation of gold and silver prices, a person with knowledge of the matter has said.

We wonder how long until this particular investigation is stopped based on an “executive order” from above, because Bafin is now stepping into some very treacherous  waters with its ongoing inquiry of gold manipulation: what it reveals will certainly not be to the liking of the financial “powers that be.”


via Zero Hedge Tyler Durden

The Five Most Ridiculous Uses of Government Money

While funding custom-fit condoms was stretching the government’s buck just a little too far for some, the following 5 stunning expenses, earmarks, and pork spending that Bloomberg uncovered are mind-blowing. From over $500,000 on pet shampoo to what to eat on planet Mars; none of these compare with the back-pay for no work paid to Federal employees during the shutdown. Watch this 72 seconds of gluttony without throwing something at your monitor…



via Zero Hedge Tyler Durden