Tag: finance

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Once we accredit the student, not the institution, existing universities will compete directly with Nearly Free Universities not in issuing diplomas but in how much students actually learned and mastered.

One of the key insights from recent work in psychology is that humans tend to substitute easier problems rather than solve difficult problems. Daniel Kahneman explained this dynamic in his recent book Thinking, Fast and Slow.

To "solve" a difficult problem we are unfamiliar with, we substitute a lesser problem we already know the answer to, and then declare we've "solved" the original (often knotty, complex) problem.

The real problem then festers, unsolved and addressed, while the misguided "solution" only drains resources and exacerbates the real problem.

An excellent example of this dynamic is higher education: the real problems are soaring costs and sharply declining yields in actual learning and in the real-world value of a diploma.

Consider the study Academically Adrift: Limited Learning on College Campuses which concluded that "American higher education is characterized by limited or no learning for a large proportion of students."

These charts illustrate the costs and diminishing returns:

The yield (in earnings) on the increasingly unaffordable college degree is declining sharply:

The Status Quo has substituted two false "solutions" that completely ignore the real problems of soaring costs and diminishing returns: increasing student loans and hiring hundreds of thousands of non-teaching administrators.

While student loans have soared to over $1 trillion, with direct Federal loans ballooning from $115 billion to over $700 billion in a few short years, only 37% of freshmen at four-year colleges graduate in four years (58% finally graduate in six years), and 53% of recent college graduates under the age of 25 are unemployed or doing work they could have done without going to college.

New Analysis Shows Problematic Boom In Higher Ed Administrators:
 

In all, from 1987 until 2011-12–the most recent academic year for which comparable figures are available—universities and colleges collectively added 517,636 administrators and professional employees, according to the analysis by the New England Center for Investigative Reporting.

“There’s just a mind-boggling amount of money per student that’s being spent on administration,” said Andrew Gillen, a senior researcher at the institutes. “It raises a question of priorities.”

The ratio of nonacademic employees to faculty has also doubled. There are now two nonacademic employees at public and two and a half at private universities and colleges for every one full-time, tenure-track member of the faculty.

The number of employees in central system offices has increased six-fold since 1987, and the number of administrators in them by a factor of more than 34.

I have demonstrated in my book The Nearly Free University and The Emerging Economy: The Revolution in Higher Education that the tuition for a four-year bachelor's degree could (and should) cost $5,000, not $100,000 or $200,000.

The technology and tools already exist to accredit the student, not the institution and provide distributed courses, adaptive learning and real-world, workplace-based workshops for a tiny fraction of the ineffective, unaffordable system of higher education we are currently burdened with.

Once costs decline 95%, there is no need for student loans or the bloated bureaucracies currently overseeing the parasitic student-loan system.

Once we accredit the student, not the institution, existing universities will compete directly with Nearly Free Universities not in issuing diplomas but in how much students actually learned and mastered. If students can learn as much or more for $5,000 (including workshops in real-world workplaces) than they do for $160,000 in conventional universities, then the sectors of higher education that charge $160,000 for a 4-year degree will vanish.

In essence, technology has leapfrogged the existing higher education Status Quo, just as it has leapfrogged the banking sector.

Gordon T. Long and I discuss these issues in this 25-minute program:

 

Here is a taste of what we discuss:

THE LEGACY SYSTEM IS OBSOLETE

 

via Zero Hedge http://ift.tt/1cWFi84 Tyler Durden

Watch as sparks fly between a Ukrainian military APC, possibly the same one we revealed earlier, as it gets into some blazingly close encounters with the Kiev protesters. It is unclear who won however it is quite clear that at this point the proxy war in Ukraine between
Russia/Gazprom and the European Union/US State Dept/Saudi/Qatar can be upgraded to “hot.”

And the death and injury toll, which is rising by the hour:

• 6 policemen dead
• 6 protestors dead
• Police HQ in Ternopli on fire
• Police HQ in Lviv occupied
• More than 150 injuries

Finally this:

• KLITSCHKO ARRIVES AT YANUKOVYCH’S OFFICE FOR TALKS: REUTERS

In short: things have spiraled out of control, and the only possible outcome is another new all time high in the Spoos overnight.

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

So Venezuela is collapsing, Thailand is crumbling, and Ukraine is for all intent and purpose under martial law, US macro data is dreadful (and no, it's not all the frigging weather), and German consumer confidence dumped again; and US stocks soar (8th day in a row for Nasdaq for first time since July) on the back of a BoJ move that was fully expected (and entirely under-utlized) but sprung USDJPY back above 102. S&P futures volume was 35% below average as the day-session range was extremely small. The Russell 2000 almost reached unchanged for 2014. The un-taper, QE balls-to-the-wall trade continues it would appear – Gold (and even more so silver – longest win-streak in 46 years) continue to surge; Treasury yields continue to slide; the USD slips lower (led by EUR strength); and of course, high-beta equities jump higher (as stodgy big caps underperform). Unfortunately, the EM crisis is far from over – as EM FX tumbled today. VIX also rose notably, disconnecting from stocks; and credit markets are wider today than Friday's close.

 

While stocks made the headlines, the real news was made in commodity-land with silver and crude oil surging…

 

Quite a mixed day – KO dragging the Dow down, Trannies weak but high beta honeys soared…

 

The Nasdaq is following a very similar path to July – the last time it tested its 100DMA – up 7.8% in the last 8 days – the most since Dec 2011

 

Despite some early weakness, stocks recovered to track the flatness in USDJPY… but EM FX kept sliding… look at the narrowness of the trading range this afternoon

 

Treasuries rallied along with stocks but soon after Europe closed, bonds started to sell-off modestly… the sell-off Friday has been eradicated…

 

FX markets overall were quite volatile though we note the knee-jerk of the BoJ is starting to fade. USD slipped lower as EUR strength dragged it down…

 

Year to date – the Nasdaq is in full bulltard mode; The Russell and S&P are closing in on unchanged for 2014

 

VIX decoupled from stocks today…

 

And credit markets are worse than Friday's close…

 

Charts: Bloomberg

Bonus Chart: WTI crude prices have risen at their fastest pace in 9 years (and are at their highest on record)…

 

Bonus Bonus Chart: The Nikkei got a little over-excited this afternoon as USDJPY slid lower…

 

via Zero Hedge http://ift.tt/1cn3Quh Tyler Durden

Submitted by Simon Black via Sovereign Man blog,

Probably every kid in the world has at some point dreamed of having a time machine and being able to travel back to the past… usually to see dinosaurs or something like that.

Time travel is an almost universal fantasy. And if I could snap my fingers and turn the pages of time, I’d be seriously curious to check out the thousand-year period between the decline of the Western Roman Empire and the rise of the Renaissance.

They used to refer to this period as ‘the Dark Ages’ (though historians have since given up that moniker), a time when the entire European continent was practically at an intellectual standstill.

The Church became THE authority on everything– Science. Technology. Medicine. Education. And they kept the most vital information out of the hands of the people… instead simply telling everyone what to believe.

People living in that time had to trust that the high priests were smart guys and knew what they were talking about.

Interpreting facts and observations for yourself was heresy, and anyone who formed original thought and challenged the authority of church and state was burned at the stake.

Granted, human civilization has come a long way since then. But the basic building blocks are not terribly different than before.

Anyone who challenges the state is still burned at the stake. And our entire monetary system requires that we all trust the high priests of central banking and economics. Those that stray from the state’s message and spread economic heresy are cast down and vilified.

You may recall the case of Harvard professors Ken Rogoff and Carmen Reinhart who wrote the seminal work: “This Time is Different: Eight Centuries of Financial Folly”.

The book highlighted dozens of shocking historical patterns where once powerful nations accumulated too much debt and entered into terminal decline.

Spain, for example, defaulted on its debt six times between 1500 and 1800, then another seven times in the 19th century alone.

France defaulted on its debt EIGHT times between 1500 and 1800, including on the eve of the French Revolution in 1788. And Greece has defaulted five times since 1800.

The premise of their book was very simple: debt is bad. And when nations rack up too much of it, they get into serious trouble.

This message was not terribly convenient for governments that have racked up unprecedented levels of debt. So critics found some calculation errors in their Excel formulas, and the two professors were very publicly discredited.

Afterwards, it was as if the entire idea of debt being bad simply vanished.

Not to worry, though, the IMF has now stepped up with a work of its own to fill the void.

And surprise, surprise, their new paper “[does] not identify any clear debt threshold above which medium-term growth prospects are dramatically compromised.”

Translation: Keep racking up that debt, boys and girls, it’s nothing but smooth sailing ahead.

But that’s not all. They go much further, suggesting that once a nation reaches VERY HIGH levels of debt, there is even LESS of a correlation between debt and growth.

Clearly this is the problem for Europe and the US: $17 trillion? Pish posh. The economy will really be on fire once the debt hits $20 trillion.

There’s just one minor caveat. The IMF admits that they had to invent a completely different method to arrive to their conclusions, and that “caution should be used in the interpretation of our empirical results.”

But such details are not important.

What is important is that the economic high priests have proven once and for all that there are absolutely no consequences for countries who are deeply in debt.

And rather than pontificate what these people are smoking, we should all fall in line with unquestionable belief and devotion to their supreme wisdom.

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

Submitted by Simon Black via Sovereign Man blog,

Probably every kid in the world has at some point dreamed of having a time machine and being able to travel back to the past… usually to see dinosaurs or something like that.

Time travel is an almost universal fantasy. And if I could snap my fingers and turn the pages of time, I’d be seriously curious to check out the thousand-year period between the decline of the Western Roman Empire and the rise of the Renaissance.

They used to refer to this period as ‘the Dark Ages’ (though historians have since given up that moniker), a time when the entire European continent was practically at an intellectual standstill.

The Church became THE authority on everything– Science. Technology. Medicine. Education. And they kept the most vital information out of the hands of the people… instead simply telling everyone what to believe.

People living in that time had to trust that the high priests were smart guys and knew what they were talking about.

Interpreting facts and observations for yourself was heresy, and anyone who formed original thought and challenged the authority of church and state was burned at the stake.

Granted, human civilization has come a long way since then. But the basic building blocks are not terribly different than before.

Anyone who challenges the state is still burned at the stake. And our entire monetary system requires that we all trust the high priests of central banking and economics. Those that stray from the state’s message and spread economic heresy are cast down and vilified.

You may recall the case of Harvard professors Ken Rogoff and Carmen Reinhart who wrote the seminal work: “This Time is Different: Eight Centuries of Financial Folly”.

The book highlighted dozens of shocking historical patterns where once powerful nations accumulated too much debt and entered into terminal decline.

Spain, for example, defaulted on its debt six times between 1500 and 1800, then another seven times in the 19th century alone.

France defaulted on its debt EIGHT times between 1500 and 1800, including on the eve of the French Revolution in 1788. And Greece has defaulted five times since 1800.

The premise of their book was very simple: debt is bad. And when nations rack up too much of it, they get into serious trouble.

This message was not terribly convenient for governments that have racked up unprecedented levels of debt. So critics found some calculation errors in their Excel formulas, and the two professors were very publicly discredited.

Afterwards, it was as if the entire idea of debt being bad simply vanished.

Not to worry, though, the IMF has now stepped up with a work of its own to fill the void.

And surprise, surprise, their new paper “[does] not identify any clear debt threshold above which medium-term growth prospects are dramatically compromised.”

Translation: Keep racking up that debt, boys and girls, it’s nothing but smooth sailing ahead.

But that’s not all. They go much further, suggesting that once a nation reaches VERY HIGH levels of debt, there is even LESS of a correlation between debt and growth.

Clearly this is the problem for Europe and the US: $17 trillion? Pish posh. The economy will really be on fire once the debt hits $20 trillion.

There’s just one minor caveat. The IMF admits that they had to invent a completely different method to arrive to their conclusions, and that “caution should be used in the interpretation of our empirical results.”

But such details are not important.

What is important is that the economic high priests have proven once and for all that there are absolutely no consequences for countries who are deeply in debt.

And rather than pontificate what these people are smoking, we should all fall in line with unquestionable belief and devotion to their supreme wisdom.

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

In the aftermath of the crushing humiliation from two weeks ago when the bipartisan (if perpetually wrong) Congressional Budget Office found that Obamacare would result in an additional 2.5 million job losses over the next decade, all else equal, one would think that the administration would, and should, do everything to make sure that the CBO is sufficiently incentivized, monetarily if need be (wink wink) to avoid such embarrassing incidents of truthiness in the future. One would not think that Obama would turn the other cheek and eagerly anticipate yet another roundhouse punch to the face just days later. Yet that is precisely what happened.

Minutes ago, the CBO issued another stunner of a report, looking at the impact of the minimum wage boost proposal from $7.25 to $10.10 (which at least when it comes to Federal workers is nothing more than a populist gimmick since as we showed previously the average Federal worker makes nearly twice as much as the average American). The punchline: while income would be boosted for about 16.5 million workers or a grand amount of about $31 billion, “the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.” And the cherry on top: as much as an additional 1 million jobs would be lost by the end of 2016.

All in a day’s work for central-planning.

The summary findings in a nutshell, er, nutchart:

The longer version:

Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.

What Options for Increasing the Minimum Wage Did CBO Examine?

For this report, CBO examined the effects on employment and family income of two options for increasing the federal minimum wage (see the figure below):

• A “$10.10 option” would increase the federal minimum wage from its current rate of $7.25 per hour to $10.10 per hour in three steps—in 2014, 2015, and 2016. After reaching $10.10 in 2016, the minimum wage would be adjusted annually for inflation as measured by the consumer price index.
• A “$9.00 option” would raise the federal minimum wage from $7.25 per hour to $9.00 per hour in two steps—in 2015 and 2016. After reaching $9.00 in 2016, the minimum wage would not be subsequently adjusted for inflation.

 

What Effects Would Those Options Have?

The $10.10 option would have substantially larger effects on employment and income than the $9.00 option would—because more workers would see their wages rise; the change in their wages would be greater; and, CBO expects, employment would be more responsive to a minimum-wage increase that was larger and was subsequently adjusted for inflation. The net effect of either option on the federal budget would probably be small.

 

Effects of the $10.10 Option on Employment and Income

 

Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.

 

Many more low-wage workers would see an increase in their earnings. Of those workers who will earn up to $10.10 under current law, most—about 16.5 million, according to CBO’s estimates—would have higher earnings during an average week in the second half of 2016 if the $10.10 option was implemented. Some of the people earning slightly more than $10.10 would also have higher earnings under that option, for reasons discussed below. Further, a few higher-wage workers would owe their jobs and increased earnings to the heightened demand for goods and services that would result from the minimum-wage increase.

 

The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.

It gets worse:

Moreover, the increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices. CBO examined family income overall and for various income groups, reaching the following conclusions (see the figure below):

Then there is the question of the impact on the Federal budget:

In addition to affecting employment and family income, increasing the federal minimum wage would affect the federal budget directly by increasing the wages that the federal government paid to a small number of hourly employees and indirectly by boosting the prices of some goods and services purchased by the government. Most of those costs would need to be covered by discretionary appropriations, which are capped through 2021 under current law.

 

Federal spending and taxes would also be indirectly affected by the increases in real income for some people and the reduction in real income for others. As a group, workers with increased earnings would pay more in taxes and receive less in federal benefits of certain types than they would have otherwise. However, people who became jobless because of the minimum-wage increase, business owners, and consumers facing higher prices would see a reduction in real income and would collectively pay less in taxes and receive more in federal benefits than they would have otherwise. CBO concludes that the net effect on the federal budget of raising the minimum wage would probably be a small decrease in budget deficits for several years but a small increase in budget deficits thereafter. It is unclear whether the effect for the coming decade as a whole would be a small increase or a small decrease in budget deficits.

Obviously, it is not rocket science – except to some very confused Keynesians – that hiking minimum wages always results in job losses, and as for the federal deficit in 10 years, the last entity whose opinion we want to hear about this is of course, the CBO, which in 2001 had forecast that 2011 debt would be negative $2.4 trillion.

Of course, the political backlash has already started. The Hill reports:

The office of Speaker John Boehner (R-Ohio) was quick to seize on the CBO finding.

 

“This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working. With unemployment Americans’ top concern, our focus should be creating – not destroying – jobs for those who need them most,” said Boehner spokesman Brendan Buck.

And, as expected, the democrats were furious. Again.

But Sen. Tom Harkin (D-Iowa), the lead sponsor of the Senate bill to raise the minimum wage, took issue with the CBO’s findings.

 

“More than 600 economists, including seven Nobel Prize laureates, recently affirmed the growing consensus that low-wage workers benefit from modest increases in the minimum wage without negative consequences for the low-wage job market,” Harkin said.

 

“In fact, an analysis of the Fair Minimum Wage Act reveals that gradually raising the minimum wage to $10.10 would raise the wages of nearly 28 million low-wage workers, pumping $22 billion in the economy and—contrary to the CBO’s report— would create 85,000 jobs over three years due to increased consumer demand.”

 

Democrats are making the wage hike a central part of their midterm election argument, and Senate Majority Leader Harry Reid (D-Nev.) has said he will bring a minimum wage bill to the floor in the coming weeks.

Surely there is nothing quite like running on an agenda of even more job losses to assure re-election.

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

In the aftermath of the crushing humiliation from two weeks ago when the bipartisan (if perpetually wrong) Congressional Budget Office found that Obamacare would result in an additional 2.5 million job losses over the next decade, all else equal, one would think that the administration would, and should, do everything to make sure that the CBO is sufficiently incentivized, monetarily if need be (wink wink) to avoid such embarrassing incidents of truthiness in the future. One would not think that Obama would turn the other cheek and eagerly anticipate yet another roundhouse punch to the face just days later. Yet that is precisely what happened.

Minutes ago, the CBO issued another stunner of a report, looking at the impact of the minimum wage boost proposal from $7.25 to $10.10 (which at least when it comes to Federal workers is nothing more than a populist gimmick since as we showed previously the average Federal worker makes nearly twice as much as the average American). The punchline: while income would be boosted for about 16.5 million workers or a grand amount of about $31 billion, “the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.” And the cherry on top: as much as an additional 1 million jobs would be lost by the end of 2016.

All in a day’s work for central-planning.

The summary findings in a nutshell, er, nutchart:

The longer version:

Increasing the minimum wage would have two principal effects on low-wage workers. Most of them would receive higher pay that would increase their family’s income, and some of those families would see their income rise above the federal poverty threshold. But some jobs for low-wage workers would probably be eliminated, the income of most workers who became jobless would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.

What Options for Increasing the Minimum Wage Did CBO Examine?

For this report, CBO examined the effects on employment and family income of two options for increasing the federal minimum wage (see the figure below):

• A “$10.10 option” would increase the federal minimum wage from its current rate of $7.25 per hour to $10.10 per hour in three steps—in 2014, 2015, and 2016. After reaching $10.10 in 2016, the minimum wage would be adjusted annually for inflation as measured by the consumer price index.
• A “$9.00 option” would raise the federal minimum wage from $7.25 per hour to $9.00 per hour in two steps—in 2015 and 2016. After reaching $9.00 in 2016, the minimum wage would not be subsequently adjusted for inflation.

 

What Effects Would Those Options Have?

The $10.10 option would have substantially larger effects on employment and income than the $9.00 option would—because more workers would see their wages rise; the change in their wages would be greater; and, CBO expects, employment would be more responsive to a minimum-wage increase that was larger and was subsequently adjusted for inflation. The net effect of either option on the federal budget would probably be small.

 

Effects of the $10.10 Option on Employment and Income

 

Once fully implemented in the second half of 2016, the $10.10 option would reduce total employment by about 500,000 workers, or 0.3 percent, CBO projects (see the table below). As with any such estimates, however, the actual losses could be smaller or larger; in CBO’s assessment, there is about a two-thirds chance that the effect would be in the range between a very slight reduction in employment and a reduction in employment of 1.0 million workers.

 

Many more low-wage workers would see an increase in their earnings. Of those workers who will earn up to $10.10 under current law, most—about 16.5 million, according to CBO’s estimates—would have higher earnings during an average week in the second half of 2016 if the $10.10 option was implemented. Some of the people earning slightly more than $10.10 would also have higher earnings under that option, for reasons discussed below. Further, a few higher-wage workers would owe their jobs and increased earnings to the heightened demand for goods and services that would result from the minimum-wage increase.

 

The increased earnings for low-wage workers resulting from the higher minimum wage would total $31 billion, by CBO’s estimate. However, those earnings would not go only to low-income families, because many low-wage workers are not members of low-income families. Just 19 percent of the $31 billion would accrue to families with earnings below the poverty threshold, whereas 29 percent would accrue to families earning more than three times the poverty threshold, CBO estimates.

It gets worse:

Moreover, the increased earnings for some workers would be accompanied by reductions in real (inflation-adjusted) income for the people who became jobless because of the minimum-wage increase, for business owners, and for consumers facing higher prices. CBO examined family income overall and for various income groups, reaching the following conclusions (see the figure below):

Then there is the question of the impact on the Federal budget:

In addition to affecting employment and family income, increasing the federal minimum wage would affect the federal budget directly by increasing the wages that the federal government paid to a small number of hourly employees and indirectly by boosting the prices of some goods and services purchased by the government. Most of those costs would need to be covered by discretionary appropriations, which are capped through 2021 under current law.

 

Federal spending and taxes would also be indirectly affected by the increases in real income for some people and the reduction in real income for others. As a group, workers with increased earnings would pay more in taxes and receive less in federal benefits of certain types than they would have otherwise. However, people who became jobless because of the minimum-wage increase, business owners, and consumers facing higher prices would see a reduction in real income and would collectively pay less in taxes and receive more in federal benefits than they would have otherwise. CBO concludes that the net effect on the federal budget of raising the minimum wage would probably be a small decrease in budget deficits for several years but a small increase in budget deficits thereafter. It is unclear whether the effect for the coming decade as a whole would be a small increase or a small decrease in budget deficits.

Obviously, it is not rocket science – except to some very confused Keynesians – that hiking minimum wages always results
in job losses, and as for the federal deficit in 10 years, the last entity whose opinion we want to hear about this is of course, the CBO, which in 2001 had forecast that 2011 debt would be negative $2.4 trillion.

Of course, the political backlash has already started. The Hill reports:

The office of Speaker John Boehner (R-Ohio) was quick to seize on the CBO finding.

 

“This report confirms what we’ve long known: while helping some, mandating higher wages has real costs, including fewer people working. With unemployment Americans’ top concern, our focus should be creating – not destroying – jobs for those who need them most,” said Boehner spokesman Brendan Buck.

And, as expected, the democrats were furious. Again.

But Sen. Tom Harkin (D-Iowa), the lead sponsor of the Senate bill to raise the minimum wage, took issue with the CBO’s findings.

 

“More than 600 economists, including seven Nobel Prize laureates, recently affirmed the growing consensus that low-wage workers benefit from modest increases in the minimum wage without negative consequences for the low-wage job market,” Harkin said.

 

“In fact, an analysis of the Fair Minimum Wage Act reveals that gradually raising the minimum wage to $10.10 would raise the wages of nearly 28 million low-wage workers, pumping $22 billion in the economy and—contrary to the CBO’s report— would create 85,000 jobs over three years due to increased consumer demand.”

 

Democrats are making the wage hike a central part of their midterm election argument, and Senate Majority Leader Harry Reid (D-Nev.) has said he will bring a minimum wage bill to the floor in the coming weeks.

Surely there is nothing quite like running on an agenda of even more job losses to assure re-election.

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

By: Chris Tell

 

We recently discussed the asymmetry available in the gold mining stocks here. We showed the spectacular returns that have been achieved by investing in beaten down sectors since the 1920’s. Just the facts on what the past has shown us. We offer no guarantees to what the future holds, but we are placing our money where our mouths are.

Barrick Gold just announced some terrible news and the stock rallied slightly, but DID NOT fall. Barrick was the subject of a special “Trading Gold” report we recently published. Brad’s (our trader) timing seems to have been spot on. It may be too early to say, but this is exactly what we spoke about in our article “Buying Bombed out Equities for Outsized Returns”. This is typically what you see with a sector bottoming.

Incidentally I just watched an interview with Rick Rule, who believes that “today’s bottom matches the 2000 Junior Resource Market”. Now is Rick selling his own book? Probably…but I wouldn’t accuse myself of being as knowledgeable on the sector as Rick, and as mentioned above the market is showing all the typical signs found at the bottom.

A long time reader and subscriber to Brad’s trade alerts commented on the Barrick Trade Alert, which you can read in its entirety here. He wanted to know if the same applied to uranium stocks, another beaten down resource sector. He said the following:

Hi Guy’s,

This trade had me wondering about uranium and a potential uranium trade. Since in this article we are dealing with the largest Gold company, I was wondering if a similar trade could be done with Cameco, the largest uranium company. I am bullish uranium long term and I think by 2016 uranium should be much higher. So, I was wondering with regards to a vertical call spread on 2016 Cameco call options. I am not a pro on which call options to use and at what price, but maybe this could also be a trade in the future. Maybe Brad could take a look at it if he is also bullish on uranium long term.

G J

I’ve been following the uranium market loosely. It is part of a watch list of sectors which I keep an eye on. It is certainly beaten up, but I don’t know much more than what the average Joe probably knows. A big run up a few years back, Fukushima, bad juju for the sector, price collapse, coming up to a probable bull run just on cycles. Nothing extraordinary in terms of knowledge, so I got one of our analysts to dig for me and this is what we found.

Key points:

• Breakeven price for producers – $70-$80/lb;
• Current price (over past 5 years) $20-$35/lb;
• Demand has continued to increase (even with Fukushima), supply has not kept up;
• Supply has come from above ground stockpiles (HEU Agreement);
• Final shipment for above agreement which supplied fully 24 million lb of Uranium each year was Dec 2013;
• Min amount of time to get a new uranium mine into production – 5 years;
• New demand? – 72 new reactors under construction with 62 of them expected to be completed by 2016.

The above is a tiny snapshot, and I’ve just highlighted the key points I think worth mentioning.

I shot the question over to Brad to get his views, and in true Brad fashion he came back with a well researched, thoughtful answer.

Hi Chris,

With respect to Cameco, I too am rather bullish more from a contrarian point of view and the fact that options are so cheap.

If you agree with our premise the next question is how to effectively apply a bullish view.

Well it starts with the volume of Cameco. Below is an index of 12 month implied volatility on Cameco options. It is close to record lows – clearly no one thinks that the price of Cameco will move at all over the coming months. But this is exactly where our asymmetry comes from, as options are priced way too low.

Given that options are priced so cheap all we need to do is to buy January 2016 calls with a $22 strike (at the money) calls. This will cost $3.50, giving a breakeven of $25.50. If CCJ was to get to 30 by January 2016 (not a tall order) it would result in a return of 130%.

Alternatively a more aggressive position could be established using an ‘out of the money’ bull call spread, in this case buying the January 2016 $25 and selling the January 2016 $35 strike @ $1.80 or better.

If CCJ was to close at or above $35 on expiry it would result in a gain of 455% (1000 – 180/180). Below is how the trade would appear on the Interactive Brokers  platform:

Hopefully this addresses the problem of ‘how to apply a bullish view on uranium.’

– Brad

This is not an official Trade Alert that we have sent to our subscribers, but if you DO want to receive Brad’s trades, you can do so HERE. The Trade Alerts are still complimentary for a limited time.

 

– Chris

“I think that we cannot survive without Nuclear.” – Masakazu Toyoda (Chairman of the Institute of Energy Economics in Japan)

via Zero Hedge http://ift.tt/1bJlLgS Capitalist Exploits

We noted that two US Navy ships – the guided-missile frigate USS Taylor and an amphibious command ship the USS Mount Whitney – entered the Black Sea on Feb 4th on what the Navy said was a routine deployment (following terrorist threats surrounding the Olympic Games in Sochi).

 

8 days later, the Navy reports, the USS Taylor is under inspection for damage (and rumored to be inoperable) after running aground as it was preparing to moor in Samsun, Turkey.

 

 

Via Stars and Stripes,

The guided-missile frigate USS Taylor, one of two ships on deployment in the Black Sea, is being inspected for damage after running aground last week as it was preparing to moor in Samsun, Turkey, a spokesman for the U.S. 6th Fleet said Tuesday.

 

The Taylor was able to moor without further incident, and there were no injuries, said 6th Fleet spokesman Lt. Shawn Eklund.

 

The incident, which occurred on Feb. 12, is under further investigation, Eklund said.

 

…

 

The Pentagon announced their planned deployment in January, after terrorist groups threatened to disrupt the Olympic Games in Sochi, the resort town on Russia’s Black Sea coast.

 

Let’s just hope there’s no problems in Sochi now? And how does a US Navy frigate run aground while preparing to moor in a friendly environment?

via Zero Hedge http://ift.tt/N6Y0n5 Tyler Durden