Category: zerohedge

Submitted by Tim Price via Sovereign Man blog,

“In investing, what is comfortable is rarely profitable.” — Robert Arnott

Valuations still matter.

Assuming that one is ‘investing’ as opposed to ‘speculating’, initial valuation (i.e. the price you pay for the investment) remains the single most important characteristic of whatever one elects to buy.

And at the risk of sounding like a broken record, “initial valuation” in the US stock market is at a level consistent with very disappointing subsequent returns, if the history of the last 130 years is any guide.

Without fail, every time the US market has traded on a cyclically-adjusted P/E (CAPE) ratio of 24 or higher over the past 130 years, it has been followed by a roughly 20 year bear market.

The evidence for the prosecution is clear, especially for the peak years 1901, 1929, 1966 and 2000. And 2013? The CAPE ratio is more than 25 today.

But there is the stock market, and then there are individual stocks. We have no interest in the former, but plenty of interest in the opportunity set of the latter.

We’re just not that interested in the US market, given general valuation concerns, and the malign role of Fed policy in distorting the prices of everything. As purists and unashamed value investors, we have plenty of other fish to fry.

Probably the biggest of those fish is that giant part of the world economy known as Asia. The chart below shows the anticipated growth in numbers of the middle class throughout the world over the next two decades.

The solid green circle is the current middle class population (or as at 2009 to be precise); the wider blue-fringed circle represents the forecast size of this population in 20 years’ time.

The OECD definition of middle class is those households with daily per capita expenditures of between $10 and $100 in purchasing power parity terms.

Note that in the US and Europe, the size of the middle class is barely expected to change over the next two decades. The stand-out area is obvious: the emerging middle class in Asia is forecast to explode, from roughly 500 million to some 3 billion people.

In equity investing, the combination of a compelling secular growth story and compellingly attractive valuations is a very rare thing, the sort of investment opportunity that one might only see once or twice in a generation, if that.

But it exists, here in Asia, today. Once again, however, we have to abandon conventional financial thinking in order to exploit it.

Asian personal consumption between 2007 and 2012 – while the West was suffering from a little localised financial crisis – grew by 5% to 10% per annum. Industries likely to benefit from sustained growth in domestic consumption include food and beverages, clothes, cars, and insurance.

But the index composition of Asian equity index benchmarks leaves much to be desired.

Of the 10 largest companies in the MSCI Asia ex-Japan index, three are low margin exporters in Korea and Taiwan, one is a low margin Chinese telecoms business, three are state-run Chinese banks, one is an inefficient Chinese oil and gas producer, and one is an expensive Chinese internet business.

That doesn’t leave much for value investors to go on.

Asian equity funds more generally, tending to be index-trackers, are heavy in Chinese stocks of indeterminate value and clunky ‘old Asia’ exporters with far too much research coverage.

Or one can ignore index composition (‘yesterday’s winners’) entirely and focus instead on ‘best in breed’ businesses throughout the region on an unconstrained basis– especially those with favorable returns on equity, strong balance sheets, and low valuations.

As Greg Fisher of Adepa Asset Management wrote, amid a world of worries, “keeping the discipline of holding lowly valued, under-owned and unleveraged companies is likely to continue to protect our capital and earn us both income and capital appreciation over the longer term.”

Or to put it more plainly, and in the words of Warren Buffett, “price is what you pay; value is what you get.”

US stocks may be expensive, but you can get better economic fundamentals and cheaper valuations selectively throughout Asia.

And as insurance against the sort of disorderly currency moves that seem to be almost inevitable courtesy of so many central banks behaving badly, we still maintain you can’t do better over the medium term than gold.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/gJqCaZfs9j8/story01.htm Tyler Durden

Monopolistic supply? Thriving wealth-effect-driven demand?

 

As we noted previously,

Medallions – essentially the right to operate a for-hail taxi in New York City – now trade for as much as $1.3 million, an all-time record.   

 

Part of this dynamic is fixed supply – there are just 13,336 medallions available for a city of 8.3 million people.  There is also a macroeconomic point, with a stronger NYC economy for those inhabitants who can afford the service.  The more surprising observation, however, is that new technology in the form of in-car credit card machines and more recently smartphone hailing apps both materially increase the value of owning a medallion.  In a world where every technology is deemed “Disruptive”, here’s a case where the status quo has actually reaped much of the reward.

 

Via ConvergEx's Nick Colas,

Here’s a news flash for everyone who thinks Elon Musk Is the preeminent automotive visionary of our generation: New York City was running electric taxicabs in the 1890s, a decade before Henry Ford’s Model T ever turned a wheel on America’s roads.  A financial crisis in 1907 put a predictable dent in consumer demand for NYC cars-for-hire, and the rise of the internal combustion engine in the 1910s and 1920s eventually did away with the battery-powered cab in Gotham.  By the 1930s the city actually had a glut of taxis, by some accounts as many as 30,000 plying the streets for fares in a Depression-era New York.

To clean up the oversupply of increasingly poorly maintained cabs with drivers desperate to make ends meet in a lousy economy, Mayor Fiorello La Guardia signed something called the Haas Act, which limited the number of taxis to 16,900.  Over the years this cap dwindled to 11,787, even as the city’s population grew.  The basic rules behind this permit, called a “Medallion”, remain largely unchanged from La Guardia’s day, and include:

• The license to own and operate a taxicab.
• The ownership of the medallion may be sold or pledged as collateral for a loan.
• The exclusive right to accept street hails.
• Fares regulated and authorized by the NYC Taxi and Limousine Commission.
• Owners of medallions must be US citizens or permanent residents
• Independent medallion owners must operate their cab 210 nine-hour shifts a year
• Corporate owners must operate their cabs 24/7
• Inspections of the vehicle occur every 4 months
• Medallions sales are subject to a 5% transfer tax

As the number of medallions available is controlled by this process – there are only 13,336 on the streets today – they are quite valuable.  Since both individual and corporate owners can sell their medallions at will, there is a ready market for these licenses.  We’ve included several charts and tables with historical price information immediately after this note, but here are the highlights:

 

 

Owning a medallion has been a winning trade that even the NY hedge fund managers who likely take several cab trips a day would covet.  At the beginning of the Financial Crisis in January 2007, an “Individual” medallion went for $414,000 and a “Corporate” version for $522,000.  Now, the numbers are $1.05 million (July 2013 “Individual”) and $1.32 million (last trade for a “Corporate” medallion, May 2013).  That is an average return of 153% over the last six and a half years. 

 

The longer term track record for medallions is equally impressive – they went for just $140,000 or so in 1993 – but teasing out the actual reasons for these eye-popping returns takes some work.  Remember that the pricing economics of taxi cab operation – and therefore the value of owning a medallion – is controlled by regulation.  You can only charge so much per mile and for wait time.

 

We went back to 1948 to see if these statutory fares explained the increasing value of a medallion.  In that year, for example, a typical cab ride of 1.5 miles with 5 minutes of waiting time at lights would cost $0.63 and the cost of a medallion was $2,500.   It would therefore have taken the average medallion owner about 4,000 trips to pay for his license.  Fast forward to 1964, and this number rose to almost 30,000 trips because fare increases did not keep pace with medallion inflation.

 

 

The good news for the medallion owner of the 1960s-1990s was that this 30,000 trip breakeven declined to about 15,000 during the difficult period of the 1970s in the city and did not breach the 30,000 mark again until 1997.  Fare increases, in other words, offset the ever rising costs of a medallion.  Gas prices also play a role in taxi cab profitability, of course, but it is worth noting (and is clear from our data) that medallion prices did not decline as oil prices rose from 1973 to the present day.

 

Taxi medallion economics have seen a breakout since the early 2000s, as evidenced by our breakeven analysis based on current fare schedules.  It now takes almost 83,000 “Typical” 1.5 mile trips for an “Individual” medallion owner to break even, up from 42,700 in 2004.  For the corporate owner, those numbers rise to 115,600 – up from 48,600 nine years ago.

Now, if you’ve ever had the chance to meet a medallion owner, you know that these are very tough people when it comes to making money.  They know their numbers cold and aren’t shy about expressing their point of view.  In short, they make the typical Wall Streeter look like slightly pouty 8 year old.   Add to this fact the realization that NYC plans to auction off 2,000 new medallions this year AND introduce a new cheap ($1,500) livery license for the outer boroughs and northern Manhattan, and the fundamentals look pretty bewildering.

Here are a few thoughts on the “Mystery of the Million Dollar Medallion”:

 

 

Pricing for a cab ride may be regulated, but nothing says New Yorkers have to take the trip.  One interpretation of the breakout in medallion prices is that New York’s affluent classes have had their own step-up in income and/or wealth and are more often taking cabs than even in the 1990s.  A wrinkle on this explanation would be that as more of Manhattan and parts of Brooklyn go through gentrification, the total population of potential cab customers increases.  This further helps keep the 13,336 medallions busy through the day.  A survey from the mid 2000s showed that most cab rides occurred during the morning commute and were generally to midtown Manhattan from the Upper East and West Side.  As the areas where affluent New Yorker live and work expand, so does their usage of yellow cabs.

 

The increase in medallion prices to nose-bleed levels is, therefore, a sign that the New York economy is extremely strong at least among the top 20% of the population by income.  Remember that if 14,000 wealthy New Yorkers all stuck their hands up at the same time on their corner, over 500 of them would have to grab a MetroCard to get to work.  And the city has 8.3 million total inhabitants.

 

The introduction of in-car credit card processing has been a boon to cab drivers tips.  According to one analysis done in 2009, cash-only tips used to run 10% of the fare.  Since the credit card options for driver tips only offer choices of 20% or more, the introduction of these machines over the last few years has meant higher per-trip revenues for the driver.  And since part of the value of a medallion is essentially the right to collect these tips, it makes sense that drivers would pay medallion owners more over time.

 

Perhaps the most interesting wild card for the value of a NYC taxi medallion is the burgeoning technology of smartphone taxi applications like Hailo, Uber, Lyft and others.  These do pretty much what you’d expect – find you a nearby cab based with information from your geolocated phone.  This could easily improve cab utilization in New York quite dramatically, justifying higher medallion prices.  The first usage data from such apps has just come out in the past few weeks, and the results are lukewarm at best.  It is, however, early days. 

What I find most interesting about this exercise is the fact that technology – credit cards and smartphone apps – has served to enhance the value of established status quo rather than its customary role of “Disruptor”.  To understand why, remember who owns the right to issue a medallion: the New York City government.  The current plans to issue 2,000 more medallions could net the still cash-strapped city something like $2 billion over the next few years.  And they control the laws about who can – and can’t – pick up a fare in New York.  Think they are going to let a “Disruptive technology” alter their existing and highly lucrative model?

If so, I have a bridge in Brooklyn I would like to sell you.  All we need to do is find a taxi to take us there. 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/WTAKNA0xHGs/story01.htm Tyler Durden

Monopolistic supply? Thriving wealth-effect-driven demand?

 

As we noted previously,

Medallions – essentially the right to operate a for-hail taxi in New York City – now trade for as much as $1.3 million, an all-time record.   

 

Part of this dynamic is fixed supply – there are just 13,336 medallions available for a city of 8.3 million people.  There is also a macroeconomic point, with a stronger NYC economy for those inhabitants who can afford the service.  The more surprising observation, however, is that new technology in the form of in-car credit card machines and more recently smartphone hailing apps both materially increase the value of owning a medallion.  In a world where every technology is deemed “Disruptive”, here’s a case where the status quo has actually reaped much of the reward.

 

Via ConvergEx's Nick Colas,

Here’s a news flash for everyone who thinks Elon Musk Is the preeminent automotive visionary of our generation: New York City was running electric taxicabs in the 1890s, a decade before Henry Ford’s Model T ever turned a wheel on America’s roads.  A financial crisis in 1907 put a predictable dent in consumer demand for NYC cars-for-hire, and the rise of the internal combustion engine in the 1910s and 1920s eventually did away with the battery-powered cab in Gotham.  By the 1930s the city actually had a glut of taxis, by some accounts as many as 30,000 plying the streets for fares in a Depression-era New York.

To clean up the oversupply of increasingly poorly maintained cabs with drivers desperate to make ends meet in a lousy economy, Mayor Fiorello La Guardia signed something called the Haas Act, which limited the number of taxis to 16,900.  Over the years this cap dwindled to 11,787, even as the city’s population grew.  The basic rules behind this permit, called a “Medallion”, remain largely unchanged from La Guardia’s day, and include:

• The license to own and operate a taxicab.
• The ownership of the medallion may be sold or pledged as collateral for a loan.
• The exclusive right to accept street hails.
• Fares regulated and authorized by the NYC Taxi and Limousine Commission.
• Owners of medallions must be US citizens or permanent residents
• Independent medallion owners must operate their cab 210 nine-hour shifts a year
• Corporate owners must operate their cabs 24/7
• Inspections of the vehicle occur every 4 months
• Medallions sales are subject to a 5% transfer tax

As the number of medallions available is controlled by this process – there are only 13,336 on the streets today – they are quite valuable.  Since both individual and corporate owners can sell their medallions at will, there is a ready market for these licenses.  We’ve included several charts and tables with historical price information immediately after this note, but here are the highlights:

 

 

Owning a medallion has been a winning trade that even the NY hedge fund managers who likely take several cab trips a day would covet.  At the beginning of the Financial Crisis in January 2007, an “Individual” medallion went for $414,000 and a “Corporate” version for $522,000.  Now, the numbers are $1.05 million (July 2013 “Individual”) and $1.32 million (last trade for a “Corporate” medallion, May 2013).  That is an average return of 153% over the last six and a half years. 

 

The longer term track record for medallions is equally impressive – they went for just $140,000 or so in 1993 – but teasing out the actual reasons for these eye-popping returns takes some work.  Remember that the pricing economics of taxi cab operation – and therefore the value of owning a medallion – is controlled by regulation.  You can only charge so much per mile and for wait time.

 

We went back to 1948 to see if these statutory fares explained the increasing value of a medallion.  In that year, for example, a typical cab ride of 1.5 miles with 5 minutes of waiting time at lights would cost $0.63 and the cost of a medallion was $2,500.   It would therefore have taken the average medallion owner about 4,000 trips to pay for his license.  Fast forward to 1964, and this number rose to almost 30,000 trips because fare increases did not keep pace with medallion inflation.

 

 

The good news for the medallion owner of the 1960s-1990s was that this 30,000 trip breakeven declined to about 15,000 during the difficult period of the 1970s in the city and did not breach the 30,000 mark again until 1997.  Fare increases, in other words, offset the ever rising costs of a medallion.  Gas prices also play a role in taxi cab profitability, of course, but it is worth noting (and is clear from our data) that medallion prices did not decline as oil prices rose from 1973 to the present day.

 

Taxi medallion economics have seen a breakout since the early 2000s, as evidenced by our breakeven analysis based on current fare schedules.  It now takes almost 83,000 “Typical” 1.5 mile trips for an “Individual” medallion owner to break even, up from 42,700 in 2004.  For the corporate owner, those numbers rise to 115,600 – up from 48,600 nine years ago.

Now, if you’ve ever had the chance to meet a medallion owner, you know that these are very tough people when it comes to making money.  They know their numbers cold and aren’t shy about expressing their point of view.  In short, they make the typical Wall Streeter look like slightly pouty 8 year old.   Add to this fact the realization that NYC plans to auction off 2,000 new medallions this year AND introduce a new cheap ($1,500) livery license for the outer boroughs and northern Manhattan, and the fundamentals look pretty bewildering.

Here are a few thoughts on the “Mystery of the Million Dollar Medallion”:

 

 

Pricing for a cab ride may be regulated, but nothing says New Yorkers have to take the trip.  One interpretation of the breakout in medallion prices is that New York’s affluent classes have had their own step-up in income and/or wealth and are more often taking cabs than even in the 1990s.  A wrinkle on this explanation would be that as more of
Manhattan and parts of Brooklyn go through gentrification, the total population of potential cab customers increases.  This further helps keep the 13,336 medallions busy through the day.  A survey from the mid 2000s showed that most cab rides occurred during the morning commute and were generally to midtown Manhattan from the Upper East and West Side.  As the areas where affluent New Yorker live and work expand, so does their usage of yellow cabs.

 

The increase in medallion prices to nose-bleed levels is, therefore, a sign that the New York economy is extremely strong at least among the top 20% of the population by income.  Remember that if 14,000 wealthy New Yorkers all stuck their hands up at the same time on their corner, over 500 of them would have to grab a MetroCard to get to work.  And the city has 8.3 million total inhabitants.

 

The introduction of in-car credit card processing has been a boon to cab drivers tips.  According to one analysis done in 2009, cash-only tips used to run 10% of the fare.  Since the credit card options for driver tips only offer choices of 20% or more, the introduction of these machines over the last few years has meant higher per-trip revenues for the driver.  And since part of the value of a medallion is essentially the right to collect these tips, it makes sense that drivers would pay medallion owners more over time.

 

Perhaps the most interesting wild card for the value of a NYC taxi medallion is the burgeoning technology of smartphone taxi applications like Hailo, Uber, Lyft and others.  These do pretty much what you’d expect – find you a nearby cab based with information from your geolocated phone.  This could easily improve cab utilization in New York quite dramatically, justifying higher medallion prices.  The first usage data from such apps has just come out in the past few weeks, and the results are lukewarm at best.  It is, however, early days. 

What I find most interesting about this exercise is the fact that technology – credit cards and smartphone apps – has served to enhance the value of established status quo rather than its customary role of “Disruptor”.  To understand why, remember who owns the right to issue a medallion: the New York City government.  The current plans to issue 2,000 more medallions could net the still cash-strapped city something like $2 billion over the next few years.  And they control the laws about who can – and can’t – pick up a fare in New York.  Think they are going to let a “Disruptive technology” alter their existing and highly lucrative model?

If so, I have a bridge in Brooklyn I would like to sell you.  All we need to do is find a taxi to take us there. 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/WTAKNA0xHGs/story01.htm Tyler Durden

If one of the biggest concerns in early 2013 was the progressively declining Bids To Cover in US Treasury auctions, the past few months have seen a halt in this trend, while today’s auction of $32 billion in 2 Year paper marked a substantial return to the high-flying  BTC day of yore when the just completed 2 Year auction not only priced strongly through the 0.303% high yield, pricing at 0.300, but more importantly, at a 3.54 Bid to Cover, a jump from October’s 3.09, and the second highest since February excluding only April’s 3.63. Curiously, the drop in the overall Bid To Cover (as can be sen on the chart below) correlates closely to the drop off in Direct take downs in the first half of the year. This too has reversed in recent months with Directs getting 27.28%, Indirects holding 22.47% and Dealers left holding just over half, or 50.25%. Over the next few days it will be revealed if the same rising BTC trend is sustained in the other near-term vintages, the 5 and 7 year auctions also due out later week.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/H71sm14PUUs/story01.htm Tyler Durden

In China, 9 out of 10 billionaires are self-made, the highest percentage of any country (and by self-made we are unsure whether BusinessWeek’s Christina Larson means via entrepreurial spirits or government connected handout) but there is another fact that makes the Chinese billionaire different from the rest of the average run-of-the-mill billionaires we discussed here. The average age of the country’s 157 billionaires is 53 years old – nine years younger than the world average. But perhaps the most shocking statistic among the luxury buyer is that the average Ferrari buyer in the U.S. is 47 years old; in China, he is 32.

 

Here’s how the wealth – among the families of Communist China’s “Eight Immortals” – has been grealt rotated and grown among them…

 

As Bloomberg BusinessWeek notes,

To be sure, self-made fortunes aren’t always made cleanly in China, as Bloomberg News documented in a 2012 investigative series on the extreme wealth of China’s leading political families, “Revolution to Riches.”

It’s no surprise, given the deep intertwinement of money and political power in China, that Beijing is home to the country’s highest number of billionaires, with 26. That’s followed by Shanghai, with 19 billionaires, and Shenzhen with 16. The UBS study calculates the combined net worth of China’s billionaires to be $384 billion, roughly equivalent to the entire annual gross domestic product of South Africa in 2012.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/B9PGzX5G6iM/story01.htm Tyler Durden

The U.S. holiday shopping season traditionally begins on Black Friday, the day after Thanksgiving, with alluring sales and promotions. On the day the ultimate discounter, Wal-Mart’s CEO resigns, as Bloomberg’s Rich Yamarone notes, the most agreed-upon take so far is that sales will be difficult amid a deteriorating economy – every major retailer in the Bloomberg Orange Book has made mention of the competitive market for the consumer’s dwindling dollar. Target Corp. CEO Gregg Steinhafel said, “it’s clear that the holiday season will be highly promotional and that consumers will be laser-focused on value.”

Via Bloomberg Economist Rich Yamarone,

Holiday spending expectations are not exactly lofty. A Gallup poll conducted Nov. 7-10 found Americans estimated spending $704 per household on Christmas gifts this season, notably lower than the $770 they projected at this time last year. A separate survey conducted by the National Foundation for Credit Counseling found the persistently high rate of unemployment coupled with the long duration of unemployment are still “very real challenges many people are facing.” The November poll revealed 53 percent said they would “cut back on spending, since I am worse off financially this year,” and 33 percent claimed they would “not spend at all, because I anticipate further financial distress.” Only 11 percent had intentions to spend at the same level as a year ago, while 3 percent looked to spend more.

 

Target’s CEO told investors last week consumer spending remain constrained. “In particular, lower and middle income households are shopping cautiously, as they work to stay within tight, very tight, household budgets, which have seen additional pressure from this year’s payroll tax increase,” he said.

Consumers simply don’t have the wherewithal to get the economy moving — real disposable personal incomes are advancing by a gradual 1.9 percent pace, while real average hourly earnings are only 1.3 percent higher than year ago levels. The household sector is limiting its purchases to necessities, like food, and retailers are well aware of this.

My colleague Matt Nolfo and I stopped by a Target in Birmingham, Alabama during a recent speaking tour. The biggest takeaway — other than a six-pack of Bud — was the enormous size of the grocery section. What used to be a few aisles of dry goods — coffee, cereal, and chips — has ballooned to a sizable dedication of square footage including frozen food, alcohol, and freshly baked produce.

Dollar Tree Inc. has been moving in this direction for several quarters. CEO Bob Sasser highlighted this during his company’s earnings report, noting comparative sales growth in the third quarter was the result of increased sales in need-based consumables. “We’re rolling out freezers and coolers at a faster pace,” Sasser said. In the third quarter Dollar Tree installed freezers and coolers in 122 additional stores for a total of 566 store installations year-to-date exceeding the company’s original plan for 550 store installations. “We now offer frozen and refrigerated product in 3,115 stores,” Sasser said.

All this food considered, maybe the year’s best seller will be fruitcake — a heavily discounted one.

 

Source: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Cce5kgN1uMc/story01.htm Tyler Durden

Submitted by James Howard Kunstler of Kunstler.com,

The financial wires and pod-waves are all lit up these days like it was happy hour at the Lottery Winner’s Lounge.  It appears that the American economy – capital management division – has found the long-wished-for magic alternative energy source: horseshit. It is fueling the conversation all over the Web and over the senile mainstream media megaphones. One technical analyst, celebrity Tweeter Ralph Acampora of Altaira Wealth Management, actually said this week that the USA would be “energy independent by 2016.” That’s rich. We’d only have to come up with 8.5 million new barrels of oil a day, or give up driving cars altogether.

Apparently, the Federal Reserve is not just hosing down the markets with liquidity (i.e. money for nothing), but has also turned its headquarters in lower Manhattan into the world’s biggest stationary crack pipe. Meanwhile, more than a few professional observers of the financial scene say there can’t be any bubble because that’s the only thing everybody talks about and bubbles only form when nobody notices them.

That’s just not true. Plenty of people were hollering and finger-pointing about the housing bubble years before it blew up the banking system, including yours truly in a book published in 2005 (The Long Emergency). The reason there is so much anxious chatter about the current bubble is because the bubble is there for all to see, and when it pops it is sure to leave a lot more rubble on the ground than the last time — for instance, the wreckage of trust in all paper investments, which would be quite an historic financial innovation. Since the interventions and manipulations of markets and interest rates are perfectly obvious, one would have to conclude from the current sentiment that faith in the crookedness of finance has completely solidified. The markets have now discounted their own dishonesty.

The story making the rounds these days is that the USA’s industrial economy is on the rise again; that the housing market has “recovered;” that (according to Meredith Whitney) the “central corridor” of the nation (Texas to Minnesota) is the second coming of Japan in the 1960s; that we have more oil than we know what to do with; that the nation has bred a super-race of intrepid entrepreneurial risk-takers like unto no other society in history; and finally that whatever else we are or are not, America is the cleanest shirt in the laundry basket of Mother Earth.

This is all horseshit of course, being smoked in the New York Fed’s crack pipe.

Here’s what’s actually going on. The Federal Reserve can only pretend to have any option besides force-feeding “money” into Wall Street as if it were a Strasbourg Goose with Crohn’s disease. What passes through goose is a vile toxic substance called malinvestment, which turns the energies of society into activities that produce nothing of value, like hedge fund employee bonuses, NSA operations, Tesla car promotion, Frank Gehry condo towers, drone strikes against Afghani wedding parties, Obama photo ops, inflated auction prices of oil paintings, and Barney’s new Jay-Z holiday fashion collection.

The Fed makes regular noises about ending the force-feeding program (a.k.a. “quantitative easing” or “bond purchases”) issued in the recorded minutes of its Open Market Committee (FOMC). The propaganda is called “forward guidance” to give it the appearance of seriousness and rectitude, but its actual nature is more like what goes on in a Jerry Lewis movie of the 1960s — a kind of antic mugging. Lately it’s referred to as “taper talk” in reference to the threat of tapering the Fed’s purchases of US Treasury bonds and other debt paper, which runs at around $85 billion a month. Sometime soon, the Fed may announce a tiny taper of say $10 billion a month. This head-fake taper will cause the interest rates on the ten-year-bond to shoot up north of 3 percent and threaten to bankrupt the government — which is too broke to pay interest that high on the loans it takes. The markets will have a whack attack over the tiny taper. The Fed will freak out at the odor of deflationary depression and go back to full-tilt force-feeding of the sick goose.

The outcome will be some combination of a complete loss of faith in paper currency and the “assets” denominated in it, a complete loss of trust between banks that they are solvent enough to do business with each other, and a conclusive implosion of Wall Street and all the institutions in and around it, extending to the executive branch of the federal government. The sorry little appendage to all that, US economy, will be left in the cold and dark, whimpering for its mommy.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Q-05c_R-DZ0/story01.htm Tyler Durden

Submitted by James Howard Kunstler of Kunstler.com,

The financial wires and pod-waves are all lit up these days like it was happy hour at the Lottery Winner’s Lounge.  It appears that the American economy – capital management division – has found the long-wished-for magic alternative energy source: horseshit. It is fueling the conversation all over the Web and over the senile mainstream media megaphones. One technical analyst, celebrity Tweeter Ralph Acampora of Altaira Wealth Management, actually said this week that the USA would be “energy independent by 2016.” That’s rich. We’d only have to come up with 8.5 million new barrels of oil a day, or give up driving cars altogether.

Apparently, the Federal Reserve is not just hosing down the markets with liquidity (i.e. money for nothing), but has also turned its headquarters in lower Manhattan into the world’s biggest stationary crack pipe. Meanwhile, more than a few professional observers of the financial scene say there can’t be any bubble because that’s the only thing everybody talks about and bubbles only form when nobody notices them.

That’s just not true. Plenty of people were hollering and finger-pointing about the housing bubble years before it blew up the banking system, including yours truly in a book published in 2005 (The Long Emergency). The reason there is so much anxious chatter about the current bubble is because the bubble is there for all to see, and when it pops it is sure to leave a lot more rubble on the ground than the last time — for instance, the wreckage of trust in all paper investments, which would be quite an historic financial innovation. Since the interventions and manipulations of markets and interest rates are perfectly obvious, one would have to conclude from the current sentiment that faith in the crookedness of finance has completely solidified. The markets have now discounted their own dishonesty.

The story making the rounds these days is that the USA’s industrial economy is on the rise again; that the housing market has “recovered;” that (according to Meredith Whitney) the “central corridor” of the nation (Texas to Minnesota) is the second coming of Japan in the 1960s; that we have more oil than we know what to do with; that the nation has bred a super-race of intrepid entrepreneurial risk-takers like unto no other society in history; and finally that whatever else we are or are not, America is the cleanest shirt in the laundry basket of Mother Earth.

This is all horseshit of course, being smoked in the New York Fed’s crack pipe.

Here’s what’s actually going on. The Federal Reserve can only pretend to have any option besides force-feeding “money” into Wall Street as if it were a Strasbourg Goose with Crohn’s disease. What passes through goose is a vile toxic substance called malinvestment, which turns the energies of society into activities that produce nothing of value, like hedge fund employee bonuses, NSA operations, Tesla car promotion, Frank Gehry condo towers, drone strikes against Afghani wedding parties, Obama photo ops, inflated auction prices of oil paintings, and Barney’s new Jay-Z holiday fashion collection.

The Fed makes regular noises about ending the force-feeding program (a.k.a. “quantitative easing” or “bond purchases”) issued in the recorded minutes of its Open Market Committee (FOMC). The propaganda is called “forward guidance” to give it the appearance of seriousness and rectitude, but its actual nature is more like what goes on in a Jerry Lewis movie of the 1960s — a kind of antic mugging. Lately it’s referred to as “taper talk” in reference to the threat of tapering the Fed’s purchases of US Treasury bonds and other debt paper, which runs at around $85 billion a month. Sometime soon, the Fed may announce a tiny taper of say $10 billion a month. This head-fake taper will cause the interest rates on the ten-year-bond to shoot up north of 3 percent and threaten to bankrupt the government — which is too broke to pay interest that high on the loans it takes. The markets will have a whack attack over the tiny taper. The Fed will freak out at the odor of deflationary depression and go back to full-tilt force-feeding of the sick goose.

The outcome will be some combination of a complete loss of faith in paper currency and the “assets” denominated in it, a complete loss of trust between banks that they are solvent enough to do business with each other, and a conclusive implosion of Wall Street and all the institutions in and around it, extending to the executive branch of the federal government. The sorry little appendage to all that, US economy, will be left in the cold and dark, whimpering for its mommy.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Q-05c_R-DZ0/story01.htm Tyler Durden

 

The US is heading towards a debt crisis.

 

Today, the US’s Debt to GDP ratio stands at over 105% (debt of $16.7 trillion on a GDP of $15.68 trillion). The only other time we’ve had more debt relative to our GDP was during WWII when the Debt to GDP ratio hit 112%:

 

 

Debt is not inherently evil. Debt that doesn’t create growth is. 

 

In the 1960s every new $1 in debt bought nearly $1 in GDP growth. In the 70s it began to fall as the debt climbed. By the time we hit the ‘80s and ‘90s, each new $1 in debt bought only $0.30-$0.50 in GDP growth.

 

And today, each new $1 in debt buys only $0.10 in GDP growth at best.

 

 

Put another way, the growth of the last three decades, but especially of the last 5-10 years, has been driven by a greater and greater amount of debt. As you can see, after the Crisis began in 2007, the US moved into the point of debt saturation at which each new $1 in debt generates no additional growth.

 

This is why the Fed has been so concerned about interest rates. With a debt load of this size, every 1% rise in the US’s debt payments means another $100 billion in debt payments.

 

Unfortunately for the Fed, rates will eventually rise. It is guaranteed. As you can see in the below chart, rates have fallen almost nonstop since the early ‘80s. This is not sustainable. At some point rates will rise again. I cannot state expressly when, but that point is coming sooner rather than later.

 

 

 

With that in mind, investors should take steps today to shield their wealth from the impact of this.

 

If you have not taken steps to prepare this, we have a FREE Special Report that outlines how to prepare your portfolio. To pick up a copy, swing by:

http://phoenixcapitalmarketing.com/special-reports.html

 

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/S8IDgHCX8qk/story01.htm Phoenix Capital Research

When one reads the following stunning, and tragic, excerpt from the World Health Organization’s recent report “Review of social determinants and the health divide in the WHO European Region: final report” what can one say but… Grecovery.

From the WHO:

Case study: countries’ experiences of financial crisis – Greece

 

Suicides rose by 17% between 2007 and 2009 and to 25% in 2010, according to unofficial 2010 data (398). The Minister of Health reported a further 40% rise in the first half of 2011 compared with the same period in 2010. Suicide attempts have also increased, particularly among people reporting economic distress (610). Homicide and theft rates have doubled. HIV rates and heroin use have risen significantly, with about half of new HIV infections being self-inflicted to enable people to receive benefits of €700 per month and faster admission on to drug-substitution programmes. Prostitution has also risen, probably as a response to economic hardship. Health care access has declined as hospital budgets have been cut by about 40% (398) and it is estimated that 26 000 public health workers (9100 doctors) will lose their jobs (611). Further cuts are expected as a result of recent negotiations with the IMF and European Central Bank.

But at least they have the Euro.

h/t @timmyconspiracy

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/9jaPUF5Emjs/story01.htm Tyler Durden