Seth Klarman Compares Phony U.S. Economy to “The Truman Show”

Seth Klarman is one of the most talented fund managers of our time. I have been consistently awed by his intelligence and consistent performance, as well as a strong sense character and honestly.

ValueWalk just put together a synopsis of his latest investor letter, and there are some choice phrases in there. While I completely disagree with him on Bitcoin (he seems to see it as merely a currency rather than an efficient, global, P2P, decentralized payment system), I’m not going to hold that against him.

Now from ValueWalk:

Baupost Group, among the largest hedge funds in the world, returned $4 billion in assets to clients at the end of 2013 because it didn’t want to grow too quickly and dilute performance, according to an investor letter reviewed by ValueWalk.  Seth Klarman’s fund, which in 2013 had a high of 50% of his portfolio in cash, up from 36% in 2012, posted 2013 returns in the mid-teens consistent with the fund’s nearly 22-year track record.

Like many of the best market analysts, Seth Klarman looks at both sides of the issue, the bull and bear case, in depth.  “If you’re more focused on downside than upside, if you’re more interested in return of capital than return on capital, if you have any sense of market history, then there’s more than enough to be concerned about,” he wrote.  Citing a policy of near-zero short-term interest rates that continues to distort reality and will have long term consequences, he ominously noted “we can draw no legitimate conclusions about the Fed’s ability to end QE without severe consequences,” a thought pervasive among many top fund managers. “Fiscal stimulus, in the form of sizable deficits, has propped up the consumer, thereby inflating corporate revenues and earnings. But what is the right multiple to pay on juiced corporate earnings?”

“In an ominous sign, a recent survey of U.S. investment newsletters by Investors Intelligence found the lowest proportion of bears since the ill-fated year of 1987,” he wrote. “A paucity of bears is one of the most reliable reverse indicators of market psychology. In the financial world, things are hunky dory; in the real world, not so much. Is the feel-good upward march of people’s 401(k)s, mutual fund balances, CNBC hype, and hedge fund bonuses eroding the objectivity of their assessments of the real world? We can say with some conviction that it almost always does. Frankly, wouldn’t it be easier if the Fed would just announce the proper level for the S&P, and spare us all the policy announcements and market gyrations?” he said in a somewhat hilarious moment that bears a degree of truth.

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BTFWWIII’ers Missing As Stocks Slump Most In A Month

Gold and crude oil prices rose steadily all day even as US equities oscillated around VWAP unable to break above Friday's lows (and trading in a narrow range) on heavier than normal volume. USDJPY and US equities remained roughly coupled but stocks auctioned up and down in search of stops with algos desperate to cling to VWAP on a big down day as a rally mid-afternoon reached the S&P into the green for 2014 and marked the top of the day. Gold ended at 4-month highs, the USD rose 0.4% (led by GBP and EUR weakness), WTI crude back over $104.50 (near 6-month highs), and Treasury yields dropped 5bps or so with 10Y back under 1.60% (2nd lowest yield close in 4 months). VIX jumped above 16% – 1-month highs but still the asset-gatherers demand we BTFWWIII

 

S&P 500 Futures traded in a narrow range around VWAP unable to break Friday's lows (or hold YTD green levels)…

 

When Russia denied its ultimatum, USDJPY was ramped but stocks were not in the mood to play along…

 

The S&P 500 tagged its year-to-date unchanged levels and sold off…

 

VIX was well bid as managers reached for protection en masse

 

Treasury yields closed their lows of the day (with modest 30Y underperformance) as 10Y ended at the crucial 2.60% – its 2nd lowest yield close in 4 months…

 

Gold rallied all day – ending at 4-month highs

 

WTI Crude surged back over $104.50 – near 6-month highs…

 

The USD rose on the day led by weakness in EUR and GBP…

 

Charts: Bloomberg

Bonus Chart: It seems "investors" also sought the safety of Bitcoin…


    



via Zero Hedge http://ift.tt/1fCRGA5 Tyler Durden

Ousted Ukraine President Yanukovich Has Asked Putin To Use Military Force In Ukraine

The headlines are getting hot and heavy now. Just out from Bloomberg:

  • UKRAINE CRISIS ‘BREEDING VERY SERIOUS RISKS FOR RUSSIA’:CHURKIN
  • RADICAL EXTREMISTS TRYING TO TAKE CONTROL IN UKRAINE: CHURKIN

And Reuters with the punchline from Reuters:

  • RUSSIAN U.N. ENVOY CHURKIN SAYS UKRAINE’S OUSTED PRESIDENT YANUKOVICH HAS SENT LETTER TO PUTIN ASKING HIM TO USE RUSSIAN MILITARY FORCE IN UKRAINE

What will Putin do if he still believes, as he has said, Yanukl to be the proper president of the Ukraine?


    



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Ukraine’s NATO Member Neighbors To Boost Air Force Presence

As the big questions surrounding the future of the Ukraine crisis persist, the countries neighboring the former communist nation, and especially the Baltic states which are members of NATO, are asking for safeguards should Russian ambitions end up just a little too big to be contained solely by the Ukraine. As a result, the WSJ reports they are considering calling for a greater North Atlantic Treaty Organization presence in their countries “if the situation gets worse” in the Ukraine, Ojars Kalnins, the chairman of the foreign-affairs committee of the Latvian parliament, said Monday. Mr. Kalnins said that a worsening of the Ukraine crisis “such as an outright invasion” of areas outside Crimea would present a threat to all of Russia’s neighbors, including the Baltic states–which are members of NATO. Such an expanded conflict should be reason for NATO to “bring extra military support to the Baltic region as a safeguard.”

From the WSJ:

Atis Lejins, a member of the Latvian parliament’s foreign-affairs committee, said increasing the number of NATO aircraft patrolling Baltic airspace could be one way to beef up NATO’s presence.

 

Currently a small, rotating contingent of fighter aircraft from NATO countries operates from a base in Lithuania. Mr. Lejins, a former U.S. Marine, said one example of a heightened presence was the U.S. Air Force Aviation Detachment (AV Det) program in Poland, which rotates fighter and transport units to bases in Poland.

 

Critics of an increased NATO presence say that costs to both Latvia and NATO could be a hurdle to expanding air patrols. Increased  air patrols would upgrade the NATO presence in all three countries because aircraft cover the airspace of all three Baltic countries.

 

Mr. Kalnins spoke after a joint meeting of the Saeima’ s Foreign Affairs and European Affairs committees that condemned Russia’s incursion into Crimea and called for European Union and Organization for Security and Cooperation in Europe (OSCE)  observers to be sent to the Ukraine.

 

He spoke on Monday at the same time as the Lithuanian Parliament’s Foreign Affairs and National Security and Defence Committee passed a resolution condemning Russia’s military aggression against Ukraine and the occupation of the territory of Ukraine. The Lithuanian resolution also called on the North Atlantic Council to temporarily redeploy NATO military forces to its “eastern part, including the Baltic states.”

One country which may have already acted in this regard is Poland. According to Dziennik Wschodni, earlier today F-16 fighter jets could be seen above the Polish town of Lublin and other towns of the province.  “Military jets appeared over our region between the hours of 2 and 3 pm. Our Internet users say that they heard the roar of the engines also in the morning.”

“One of the aircraft from our base flew the route from Lublin to Krakow” confirms Cpt. Marek Kwiatek, Press Officer of the 32nd Tactical Air Base at Lask.

 

 

The second aircraft came probably from a base in Krzesiny. There were also questions whether the flights are connected with the Russian invasion of Ukraine. – This is the stadard of training, which are held throughout the country. Pilots among others support this so-called. habits flights – explains Cpt. Flower. He adds that the aircraft is on standby.

So more drills or something more? Recall that Russia commenced a massive “drill” last week in the West and Central regions before it quite demonstratively invaded the Crimea. It is only logical that the countries that stand to lose the most from an expansion of the Russian invasion match that drill with “drills” of their own.

Finally, recall that as we reported in December, Russia then had positioned tactical, nuclear-capable missiles along the Polish border. Based on this, and Poland’s recent history with friendly and not so friendly neighbors, one can see why the Baltic nation would be very nervous.

From December 2013:

Russia Stations Tactical, Nuclear-Capable Missiles Along Polish Border

2013 was a year when Europe tried to reallign its primary source of natgas energy, from Gazpromia to Qatar, and failed. More importantly, it was a year in which Russia’s Vladimir Putin undisputedly won every foreign relations conflict that involved Russian national interests, to the sheer humiliation of both John Kerry and Francois Hollande. However, it seems the former KGB spy had a Plan B in case things escalated out of control, one that fits with what we wrote a few days ago when we reported that “Russia casually announces it will use nukes if attacked.” Namely, as Bloomberg reports citing Bild, Russia quietly stationed a double-digit number of SS-26 Stone, aka Iskander, tactical, nuclear-capable short-range missiles near the Polish border in a dramatic escalation to merely verbal threats issued as recently as a year ago.

The range of the Iskander rockets:

From Bloomberg:

  • Russia has stationed missiles with a range of about 500 kilometers in its Kaliningrad enclave and along its border with the Baltic states of Estonia, Latvia and Lithuania, Germany’s Bild-Zeitung reports, citing defense officials it didn’t identify.
  • Satellite images show a “double-digit” amount of mobile units identified as SS-26 Stone in NATO code
  • Missiles were stationed within the past 12 months
  • SS-26 can carry conventional as well as nuclear warheads

In other words, Russia quietly has come through on its threat issued in April 2012, when it warned it would deploy Iskander missiles that could target US missile defense systems in Poland. From RIA at the time:

Moscow reiterated on Tuesday it may deploy Iskander theater ballistic missiles in the Baltic exclave of Kaliningrad that will be capable of effectively engaging elements of the U.S. missile defense system in Poland.

 

NATO members agreed to create a missile shield over Europe to protect it against ballistic missiles launched by so-called rogue states, for example Iran and North Korea, at a summit in Lisbon, Portugal, in 2010.

 

The missile defense system in Poland does not jeopardize Russia’s nuclear forces, Army General Nikolai Makarov, chief of the General Staff of the Russian Armed Forces, said. 

 

“However, if it is modernized…it could affect our nuclear capability and in that case a political decision may be made to deploy Iskander systems in the Kaliningrad region,” he said in an interview with RT television.

 

But that will be a political decision,” he stressed. “So far there is no such need.”

Looks like a little over a year later, the “political decision” was taken as the need is there. But why does Russia need to send a very clear message of escalation at a time when the Cold War is long over, when globalization and free trade, promote game theoretic world peace (or “piece” as the Obama administration wouldsay), oh, and when Russia quietly has decided to reestablish the former USSR starting with the Ukraine.

We’ll leave the rhetorical question logically unanswered.


    



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

A Tale Of Two Winters

Presenting the US car market this cold, stormy, sunny, dry, and rainless winter according to “The Haves… and The Have-Nots…”

 

The Haves…

  • *FERRARI POSTS RECORD SALES IN U.S. AND U.K. IN 2013
  • *MASERATI GLOBAL SALES MORE THAN DOUBLE IN JAN
  • *PORSCHE REPORTS RECORD FEB. SALES (UP 15%)
  • *MERCEDES REPORS HIGHEST JAN SALES IN HISTORY
  • *LAMBORGHINI SEES 2014 HURACAN DELIVERIES EXCEEDING 1,800

And The Have-Nots…

  • *FORD FEB U.S. LIGHT-VEHICLE SALES FALL 6.1%
  • *GM FEBRUARY U.S. SALES FALL 1%
  • *TOYOTA U.S. FEB SALES DOWN 4.3%
  • *VOLKSWAGEN OF AMERICA FEB. VEHICLE SALES DOWN 13.8%
  • *HONDA FEB. U.S. VEHICLE SALES FELL 7%

It appears the 1% don’t feel the cold (or wet) weather?

What is supremely clear from this data is – if you want to sell cars, raise prices…


    



via Zero Hedge http://ift.tt/1eXu0Rd Tyler Durden

Kunstler: “Welcome To The Era Of Failed States”

Submitted by James H. Kunstler of Kunstler.com,

So, now we are threatening to start World War Three because Russia is trying to control the chaos in a failed state on its border — a state that our own government spooks provoked into failure? The last time I checked, there was a list of countries that the USA had sent troops, armed ships, and aircraft into recently, and for reasons similar to Russia’s in Crimea: the former Yugoslavia, Somalia, Afghanistan, Iraq, Libya, none of them even anywhere close to American soil. I don’t remember Russia threatening confrontations with the USA over these adventures.

The phones at the White House and the congressional offices ought to be ringing off the hook with angry US citizens objecting to the posturing of our elected officials. There ought to be crowds with bobbing placards in Farragut Square reminding the occupant of 1400 Pennsylvania Avenue how ridiculous this makes us look.

The saber-rattlers at The New York Times were sounding like the promoters of a World Wrestling Federation stunt Monday morning when they said in a Page One story:

“The Russian occupation of Crimea has challenged Mr. Obama as has no other international crisis, and at its heart, the advice seemed to pose the same question: Is Mr. Obama tough enough to take on the former K.G.B. colonel in the Kremlin?”

Are they out of their chicken-hawk minds over there? It sounds like a ploy out of the old Eric Berne playbook: Let’s You and Him Fight. What the USA and its European factotums ought to do is mind their own business and stop issuing idle threats. They set the scene for the Ukrainian melt-down by trying to tilt the government their way, financing a pro-Euroland revolt, only to see their sponsored proxy dissidents give way to a claque of armed neo-Nazis, whose first official act was to outlaw the use of the Russian language in a country with millions of long-established Russian-speakers. This is apart, of course, from the fact Ukraine had been until very recently a province of Russia’s former Soviet empire.

Secretary of State John Kerry — a haircut in search of a brain — is winging to Kiev tomorrow to pretend that the USA has a direct interest in what happens there. Since US behavior is so patently hypocritical, it raises the pretty basic question: what are our motives? I don’t think they amount to anything more than international grandstanding — based on the delusion that we have the power and the right to control everything on the planet, which is based, in turn, on our current mood of extreme insecurity as our own ongoing spate of bad choices sets the table for a banquet of consequences.

America can’t even manage its own affairs. We ignore our own gathering energy crisis, telling ourselves the fairy tale that shale oil will allow us to keep driving to WalMart forever. We paper over all of our financial degeneracy and wink at financial criminals. Our infrastructure is falling apart. We’re constructing an edifice of surveillance and social control that would make the late Dr. Joseph Goebbels turn green in his grave with envy while we squander our dwindling political capital on stupid gender confusion battles.

The Russians, on the other hand, have every right to protect their interests along their own border, to protect the persons and property of Russian-speaking Ukrainians who, not long ago, were citizens of a greater Russia, to discourage neo-Nazi activity in their back-yard, and most of all to try to stabilize a region that has little history and experience with independence. They also have to contend with the bankruptcy of Ukraine, which may be the principal cause of its current crack-up. Ukraine is deep in hock to Russia, but also to a network of Western banks, and it remains to be seen whether the failure of these linked obligations will lead to contagion throughout the global financial system. It only takes one additional falling snowflake to push a snow-field into criticality.

Welcome to the era of failed states. We’ve already seen plenty of action around the world and we’re going to see more as resource and capital scarcities drive down standards of living and lower the trust horizon. The world is not going in the direction that Tom Friedman and the globalists thought. Anything organized at the giant scale is now in trouble, nation-states in particular.  The USA is not immune to this trend, whatever we imagine about ourselves for now. 


    



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Obama’s Latest Tactic: “Isolate Russia”

After once again clearly delineating that Russian “costs” are set to surge, and hopefully he means more than just the drop in the Micex and its artificial, paper wealth effect which Putin couldn’t care less about as long as crude is soaring…

  • OBAMA SAYS INCIDENT WITH UKRAINE WILL BE ‘COSTLY’ FOR RUSSIA

… the US president has laid out his latest tactic:

  • OBAMA SAYS HE’S CONSIDERING ECONOMIC STEPS TO ISOLATE RUSSIA

Does he also mean to isolate Russian gas from entering Germany, which just happens to be reliant on Russian imports for a third of its natgas needs? He goes on.

  • OBAMA SAYS RUSSIA ON `WRONG SIDE OF HISTORY’ IN UKRAINE

Which of course is written by the winners. And the punchline:

  • OBAMA URGES CONGRESS TO PROVIDE PACKAGE OF ASSISTANCE QUICKLY TO UKRAINIAN PEOPLE; SAYS SHOULD NOT BE PARTISAN ISSUE ON CAPITOL HILL

Maybe time to send Obamacare to Kiev: so many young, strapping participants just waiting to sign up? Or maybe it just time to raise minimum wages in the Ukraine?


    



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

Another Thing Banned in NYC – Early Morning Jogs in Central Park

Sometimes I look at how NYC has been transformed in recent years and I just shake my head. It has become so similar to one of those elite communities in Huxley’s Brave New World. Just a haven for cry baby bailed out bankers running amok, tossing their Fed provided fiat all over the place. As I have said before, the city of my birth has become Disney Land for Wall Street, with the NYPD basically a private enforcement arm of JP Morgan and the TBTF banks.

To scared Manhattanites everywhere, fear not. The departure of Mayor Bloomberg has apparently done nothing to stop the city’s evolution into full blown nanny-state.

The latest thing New Yorkers can’t do is jog in Central Park early in the morning. Just to keep you peasants safe…

From the Daily News:

A city cop issued summonses to Peter Shankman and a friend for the crime of jogging in Central Park at 4:30 a.m. The park is closed between 1 a.m. and 6 a.m. — even to fitness freaks.

“It’s such a joke, but I’m like, seriously?” Shankman, 41, told the Daily News on Saturday.

“I was expecting to see ‘Candid Camera!’ You’re writing me a summons for exercising?”

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Preparing For Obama’s 2015 Budget With A Chart And A Toy

Submitted by F.F.Wiley via Cyniconomics blog,

The goal that was identified by Simpson-Bowles was to reduce the deficit as a percentage of GDP to below 3%, but what our budget projection shows is that over the course of the next ten years (or in ten years) the percentage will actually be below 2%. So we’ve made substantial progress in reducing the deficit.

 

– White House deputy press secretary Josh Earnest, offering a preview of Obama’s 2015 budget proposal to be unveiled tomorrow

There’s so much wrong with that statement that we won’t even bother to correct it. Nor do we plan to pick through the budget proposal to see just how they cooked the books to show a deficit below 2% of GDP in 2024.

No one really believes the numbers anyway, right?

Rather than analyzing projections that we already know are defective, we’ll try to counter the propaganda with an updated version of “The Chart That Every Taxpayer Deserves To See.”

If you missed our earlier version, we start with budget projections from the Congressional Budget Office, and then we make a series of adjustments to bring them into the real world.

There are two reasons to pick on CBO projections (even as we leave the White House’s numbers alone):

  1. Their faults are less obvious but just as fatal as the flaws in White House projections.
  2. Despite those fatal flaws, they’re widely broadcast and rarely questioned by either the mainstream media or mainstream economists.

Moreover, the media normally shows both White House and CBO budget projections in proportion to GDP, which is standard but isn’t always the best way to think about it. GDP percentages are too abstract – you can’t hold them in your hand and look at them. You can hold dollars, though, and that’s where the chart below comes in.

Using the CBO budget outlook released in February, we updated our estimates for how many dollars we’ll need to offset the national debt, on a per-taxpayer basis:

real world versus baseline chart 4

As shown, each taxpayer’s share of the debt will soon clear $150,000 on its way to over $200,000 in eight years time. These numbers are adjusted for the CBO’s inflation projections, so that $200,000 in 2022 has the same value as $200,000 today. Worse still, the figure grows faster and faster the further out you look, as we showed after the CBO published its long-term outlook last September.

Needless to say, our public finances are a mess, notwithstanding the misinformation you’ll hear tomorrow.

When President Obama rolls out his proposed budget, you’ll hear boasts about improvements in the deficit since the depths of the Great Recession. You’ll also hear claims that those improvements are easily sustained; that a much talked about “grand bargain” on long-term debt reduction can wait.

But once you see through the phony numbers in government projections, it’s clear that we’re on a path from a stupidly high debt burden to a much higher burden. Washington would need to find some leadership and foresight to change that path, and there’s no sign of that happening anytime soon.

What are those faint, dotted lines for?

The first time we published “The Chart That Every Taxpayer Deserves To See,” we went all activist and included a draft letter to your congressional rep.

This time, we overlaid some dotted lines showing where you can fold the chart to make a killer paper airplane. Your kids may not want to think about the grim message just yet, but they can at least hurl it around the living room and get familiar with it. It’ll be a big part of their future.

What’s more, by turning your debt bill into a cheap toy, you can show the same level of seriousness about fiscal risks that you find in your elected officials.

Methodology

Our projections are based entirely on data found in CBO and other government reports, but put together in a more honest and sensible way. See either of these recent articles for more detail:


    



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It Turns Out That The “Harsh Weather” Is Actually Boosting The Economy

Something curious happened earlier today: January spending – which will be part of Q1 GDP – soared, which, as we reported earlier, was entirely on the back of a record monthly surge in spending on services, while spending on goods, both durable and non-durable, dropped. The record January spending can be seen on the chart below.

 

What happened? Goldman explains.

January nominal personal spending rose 0.4% (vs. consensus +0.1%).
Both durable (-0.4%) and nondurable (-0.7%) goods spending fell on the
month. Services spending rose a sharp 0.9%, the strongest gain since the
bounce-back from the September 11 attacks in October 2001. Out-sized
gains occurred in two categories of services spending: household
utilities (+9.7%), boosted by colder weather, and health care (+1.6%) in
light of enrollments in the Affordable Care Act exchanges.

So there you have it: the first official confirmation that in addition to all its adverse impacts on employment, previously highlighted by everyone with a frontal lobe and even the CBO, in January Obamacare had a dramatic impact on US consumer discretionary impact. As in lowering it.

But far worse was “utilities”, namely the “harsh weather”, which was the primary reason for the surge in spending on non-discretionary services. Which also means far less spending on stuff one enjoys blowing money on, and far less revenues and profits by those same retailers whose seemingly infinite advertising budgets are what continue to send the social networking bubble to unseen highs.

The good news: since GDP is driven by spending of any kind – be it good or bad – in the first month of the quarter, the “harsh winter weahter” actually had a very positive imapct on GDP, which as a result of the surge in spending, will now have a higher number in the BEA’s bean counting models. As will Obamacare, through the magic of Keynesian accounting.

So the next time someone blames the weather for crushing economy in the first quarter, tell them that even Goldman has shown this is a lie. Then again, it is so much more easily comprehensible to the average idiot that the economy is hurt rather than boosted by the weather, that it is probably not even worth the effort.


    



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