Month: July 2014

Hypocrisy… or diplomacy?

 

h/t @sabbah

• *U.S. STATE DEPT, UN CHIEF BAN ANNOUNCE GAZA TRUCE IN E-MAIL
• *STATE DEPT. SAYS `ALL PARTIES’ AGREED TO HUMANITARIAN TRUCE
• *U.S. SAYS 72-HOUR CEASE-FIRE AGREED IN GAZA, TO START TOMORROW
• *U.S. SAYS CEASE-FIRE TO START AT 8 A.M. LOCAL TIME FRIDAY
  

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

“Although the levitation of financial assets has yet to levitate gold, we will grit our collective teeth on that score and await either ‘asset price justice’ or the ‘end times,’ whichever comes first.”

Authored by Paul Singer, excerpted from Elliott Management’s latest letter to investors,

GLOBAL MONETARY DELUSION – MORE COWBELL

Central bankers think they are the masters of the universe because the world is looking to them (and only them) to deliver continuous stability and prosperity. There is no reason to suppose that they understand the modern financial system and economy to any greater extent than they did in 2007 (that is to say, not at all). Nevertheless, they plow ahead, expressing total confidence that what they are saying and doing is wise and not dangerous drivel. These master chefs have but one vat next to them on the policy table, and it is labeled “QE.”

They seem to think that all they need to do is dip into this vat, ladle on some QE, and asset prices will rise, the economy can be supported, jobs can be created and growth can be achieved. With no side effects, no indigestion, and no other factor would make them put the vat away and demand other ingredients. The new Chairwoman of the Fed, moreover, has made clear that as far as she is concerned, ZIRP is perfectly fine despite the stock market and high-end real estate booms, and that it will last, maybe not forever, but for a long period of time. The U.S. economy is growing, unemployment (at least the way they report it) is 6.1%, but the right interest rate for Chairwoman Yellen remains zero.

The central bankers of the developed world (with the possible exception of Germany’s) have failed to tell their political leaders that QE and ZIRP are creating great risks and uncertainties for the future. None of them has actually called a halt to monetary extremism in combination with demanding policies, or set out any policy recommendations that their governments should pursue in order to create real sustainable economic growth. Even the exquisitely named and effectuated “tapering” in the U.S. is months away from actually suspending the printing of money, and the Fed promises to preserve interest rates near zero for an extended period. In Europe, short-term interest rates are currently declining (to below zero in some cases) because of a new promise to keep interest rates lower for longer, and a new scheme for the central bank to purchase all kinds of securities.

All of the major central bankers profess a dread and imminent fear of deflation. In reality, the only places where such concerns are legitimate are in the lower-performing countries of the euro bloc that are prevented from devaluing their currency and are being forced to lower wages in order to correct imbalances. Everywhere else, the present and future prospects for deflation are virtually nonexistent, given the authorities’ misguided determination to boost inflation to levels higher than are currently purported to exist.

We can state with a great deal of confidence (although it is a minority view) that neither we nor the central bankers who are orchestrating these policies on the world have any idea how this situation is going to end, despite their assurances to the contrary. We believe that global monetary policy is currently extremely dangerous, that the financial system continues to be opaque and overleveraged, that major financial institutions are still essentially dependent on government guarantees to protect them if there is a renewed financial crisis, and that an abrupt shake-up could occur at any time.

Since confidence in paper money, central bankers and political leaders is unjustifiable and out of line with reality, the loss of such confidence could conceivably occur at any time, leading to the next “run” on the global financial system. We believe that those great sages who think that countries in the developed world have decades to get their financial systems and entitlement programs in order are delusional. In reality, only the markets can determine when time has expired – not the politicians or pundits and certainly not the central bankers.

Signals between QE, consumer prices, asset prices, bond prices, stock prices and growth are completely awry because governments are pulling the strings to a degree never before seen in free enterprise systems. It is unlikely that these unprecedented and experimental government policies of such gargantuan scope will actually create the desired result and allow themselves to be able to be unwound without great shock and disruption to the global financial system.

We recently perused the annual report of the BIS (Bank for International Settlements). We were impressed by its cool-headed assessment of the risks of current governmental policy in the developed world. In the introduction to the report, the BIS said:

To return to sustainable and balanced growth, policies need to go beyond their traditional focus on the business cycle and take a longer-term perspective – one in which the financial cycle takes centre stage…They need to address head-on the structural deficiencies and resource misallocations masked by strong financial booms and revealed only in the subsequent busts. The only source of lasting prosperity is a stronger supply side. It is essential to move away from debt as the main engine of growth.

The report noted that an intense quest for yield is driving down volatility and interest rates regardless of credit quality. The BIS said that the report is a “call to action,” and that governments should do more to improve the safety and performance of their economies, labor practices, and banks, which should raise more capital as a cushion against losses. The report also said that rising debt levels in many countries increase the potential for trouble, but the report said that the risk of deflation is less than many think. The overall message is that the world is hooked on easy money and has forgotten the lessons of the financial crisis. The report said that “[T]he temptation to postpone adjustment can prove irresistible, especially when times are good and financial booms sprinkle the fairy dust of illusory riches. The consequence is a growth model that relies too much on debt, both private and public, and which over time sows the seeds of its own demise.”

We have been saying as much for some time now, but here is a prestigious international institution that is “telling it like it is” in a compelling and persuasive way. Naturally, we became curious about this institution and its members. Who are these insightful people? We were astounded to learn that the board of the BIS is comprised of none other than… the heads of the major central banks of the developed world! Yes – Yellen, Draghi, et al! So, these central bankers are simultaneously failing to tell their respective governments that (1) monetary policy has done enough; (2) monetary policy is causing massive risks and distortions; and (3) political leaders must grab the reins and make structural changes, these same central bankers are authorizing BIS reports that will enable them to say, after the coming multifactor crisis, that they told us about the risks. We wonder who from the Fed authorized the report, and why they haven’t shared these harsh views of Fed policy in the FOMC meeting minutes or the endless public speeches by Fed officials. It is duplicitous for the Fed to authorize the view
s in the BIS report yet keep quiet about them elsewhere. But then, the Fed has never accepted much responsibility for the 2008 crisis, despite its decisions to keep interest rates artificially low for an extended period of time, to do a poor job of regulating the banking system and to abet Fannie and Freddie in their utter irresponsibility. History rhymes. The Fed has created the fuel for another crisis, seems to know it judging by the BIS report, and yet is covering itself with an “I told you so” report from the BIS rather than changing course.

“More cowbell” is a reference to a Saturday Night Live comedy skit in which a celebrity music producer (played by Chris Walken) keeps telling the cowbell player (Will Ferrell) in a secondrate band to play louder in the hopes of creating a better sound. It did not work, but it was funny. “More QE cowbell” as the cure-all to what troubles the global economy is also not going to work. And it is not really funny.

*  *  *

We continue watching with amazement the Fed’s magic act as it attempts to use quantitative easing and zero interest rate policy (QE and ZIRP) to create seemingly robust economic growth in the face of very poorly designed political, economic and fiscal policies, while keeping inflation within a narrow band. Substantial inflation is occurring in many asset classes and service sectors of the global economy, but is not presently recognized or captured by the traditional metrics upon which the Fed relies. This inflation is spreading in both scope and intensity. If and when it breaks out in an inescapably broad way, there will be a crowd of seriously confused policymakers making excuses and claiming that inflation does not in fact exist; it is not their fault; it was completely unpredictable; and/or it will actually be good for people.

We believe that if and when inflation goes from being something that affects only a particular list of assets (a growing list, presently a combination of things owned by the well-off plus a number of things that are basic necessities) to a widespread “in-your-face” phenomenon affecting the cost of living of almost the entire population, then the normal yardsticks of risk, return and profit may be thrown into the garbage can. These measures may be replaced by a scramble by citizens and investors to preserve value on a foundation of shifting sand, together with societal unrest that may make the current politically-useful “inequality” riffs, blaming the “1%” and attacking those “millionaires and billionaires” who refuse to “pay their fair share,” look like mere warm-ups for real class warfare.

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

“Although the levitation of financial assets has yet to levitate gold, we will grit our collective teeth on that score and await either ‘asset price justice’ or the ‘end times,’ whichever comes first.”

Authored by Paul Singer, excerpted from Elliott Management’s latest letter to investors,

GLOBAL MONETARY DELUSION – MORE COWBELL

Central bankers think they are the masters of the universe because the world is looking to them (and only them) to deliver continuous stability and prosperity. There is no reason to suppose that they understand the modern financial system and economy to any greater extent than they did in 2007 (that is to say, not at all). Nevertheless, they plow ahead, expressing total confidence that what they are saying and doing is wise and not dangerous drivel. These master chefs have but one vat next to them on the policy table, and it is labeled “QE.”

They seem to think that all they need to do is dip into this vat, ladle on some QE, and asset prices will rise, the economy can be supported, jobs can be created and growth can be achieved. With no side effects, no indigestion, and no other factor would make them put the vat away and demand other ingredients. The new Chairwoman of the Fed, moreover, has made clear that as far as she is concerned, ZIRP is perfectly fine despite the stock market and high-end real estate booms, and that it will last, maybe not forever, but for a long period of time. The U.S. economy is growing, unemployment (at least the way they report it) is 6.1%, but the right interest rate for Chairwoman Yellen remains zero.

The central bankers of the developed world (with the possible exception of Germany’s) have failed to tell their political leaders that QE and ZIRP are creating great risks and uncertainties for the future. None of them has actually called a halt to monetary extremism in combination with demanding policies, or set out any policy recommendations that their governments should pursue in order to create real sustainable economic growth. Even the exquisitely named and effectuated “tapering” in the U.S. is months away from actually suspending the printing of money, and the Fed promises to preserve interest rates near zero for an extended period. In Europe, short-term interest rates are currently declining (to below zero in some cases) because of a new promise to keep interest rates lower for longer, and a new scheme for the central bank to purchase all kinds of securities.

All of the major central bankers profess a dread and imminent fear of deflation. In reality, the only places where such concerns are legitimate are in the lower-performing countries of the euro bloc that are prevented from devaluing their currency and are being forced to lower wages in order to correct imbalances. Everywhere else, the present and future prospects for deflation are virtually nonexistent, given the authorities’ misguided determination to boost inflation to levels higher than are currently purported to exist.

We can state with a great deal of confidence (although it is a minority view) that neither we nor the central bankers who are orchestrating these policies on the world have any idea how this situation is going to end, despite their assurances to the contrary. We believe that global monetary policy is currently extremely dangerous, that the financial system continues to be opaque and overleveraged, that major financial institutions are still essentially dependent on government guarantees to protect them if there is a renewed financial crisis, and that an abrupt shake-up could occur at any time.

Since confidence in paper money, central bankers and political leaders is unjustifiable and out of line with reality, the loss of such confidence could conceivably occur at any time, leading to the next “run” on the global financial system. We believe that those great sages who think that countries in the developed world have decades to get their financial systems and entitlement programs in order are delusional. In reality, only the markets can determine when time has expired – not the politicians or pundits and certainly not the central bankers.

Signals between QE, consumer prices, asset prices, bond prices, stock prices and growth are completely awry because governments are pulling the strings to a degree never before seen in free enterprise systems. It is unlikely that these unprecedented and experimental government policies of such gargantuan scope will actually create the desired result and allow themselves to be able to be unwound without great shock and disruption to the global financial system.

We recently perused the annual report of the BIS (Bank for International Settlements). We were impressed by its cool-headed assessment of the risks of current governmental policy in the developed world. In the introduction to the report, the BIS said:

To return to sustainable and balanced growth, policies need to go beyond their traditional focus on the business cycle and take a longer-term perspective – one in which the financial cycle takes centre stage…They need to address head-on the structural deficiencies and resource misallocations masked by strong financial booms and revealed only in the subsequent busts. The only source of lasting prosperity is a stronger supply side. It is essential to move away from debt as the main engine of growth.

The report noted that an intense quest for yield is driving down volatility and interest rates regardless of credit quality. The BIS said that the report is a “call to action,” and that governments should do more to improve the safety and performance of their economies, labor practices, and banks, which should raise more capital as a cushion against losses. The report also said that rising debt levels in many countries increase the potential for trouble, but the report said that the risk of deflation is less than many think. The overall message is that the world is hooked on easy money and has forgotten the lessons of the financial crisis. The report said that “[T]he temptation to postpone adjustment can prove irresistible, especially when times are good and financial booms sprinkle the fairy dust of illusory riches. The consequence is a growth model that relies too much on debt, both private and public, and which over time sows the seeds of its own demise.”

We have been saying as much for some time now, but here is a prestigious international institution that is “telling it like it is” in a compelling and persuasive way. Naturally, we became curious about this institution and its members. Who are these insightful people? We were astounded to learn that the board of the BIS is comprised of none other than… the heads of the major central banks of the developed world! Yes – Yellen, Draghi, et al! So, these central bankers are simultaneously failing to tell their respective governments that (1) monetary policy has done enough; (2) monetary policy is causing massive risks and distortions; and (3) political leaders must grab the reins and make structural changes, these same central bankers are authorizing BIS reports that will enable them to say, after the coming multifactor crisis, that they told us about the risks. We wonder who from the Fed authorized the report, and why they haven’t shared these harsh views of Fed policy in the FOMC meeting minutes or the endless public speeches by Fed officials. It is duplicitous for the Fed to authorize the views in the BIS report yet keep quiet about them elsewhere. But then, the Fed has never accepted much responsibility for the 2008 crisis, despite its decisions to keep interest rates artificially low for an extended period of time, to do a poor job of regulating the banking system and to abet Fannie and Freddie in their utter irresponsibility. History rhymes. The Fed has created the fuel for another crisis, seems to know it judging by the BIS report, and yet is covering itself with an “I told you so” report from the BIS rather than changing course.

“More cowbell” is a reference to a Saturday Night Live comedy skit in which a celebrity music producer (played by Chris Walken) keeps telling the cowbell player (Will Ferrell) in a secondrate band to play louder in the hopes of creating a better sound. It did not work, but it was funny. “More QE cowbell” as the cure-all to what troubles the global economy is also not going to work. And it is not really funny.

*  *  *

We continue watching with amazement the Fed’s magic act as it attempts to use quantitative easing and zero interest rate policy (QE and ZIRP) to create seemingly robust economic growth in the face of very poorly designed political, economic and fiscal policies, while keeping inflation within a narrow band. Substantial inflation is occurring in many asset classes and service sectors of the global economy, but is not presently recognized or captured by the traditional metrics upon which the Fed relies. This inflation is spreading in both scope and intensity. If and when it breaks out in an inescapably broad way, there will be a crowd of seriously confused policymakers making excuses and claiming that inflation does not in fact exist; it is not their fault; it was completely unpredictable; and/or it will actually be good for people.

We believe that if and when inflation goes from being something that affects only a particular list of assets (a growing list, presently a combination of things owned by the well-off plus a number of things that are basic necessities) to a widespread “in-your-face” phenomenon affecting the cost of living of almost the entire population, then the normal yardsticks of risk, return and profit may be thrown into the garbage can. These measures may be replaced by a scramble by citizens and investors to preserve value on a foundation of shifting sand, together with societal unrest that may make the current politically-useful “inequality” riffs, blaming the “1%” and attacking those “millionaires and billionaires” who refuse to “pay their fair share,” look like mere warm-ups for real class warfare.

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

Wolf Richter   www.wolfstreet.com   http://ift.tt/Wz5XCn

I need to disclose upfront that I’m biased: I’m a beer lover. And I live in beer-paradise, the crazy state of California. Kicking back with a brewski from a local craft brewer, of which we have over 450, can make even the Fed’s capers less aggravating. But soon that beer-induced smile on my face may dry up.

California’s enduring drought that has turned into a water crisis is hitting beer production. Turns out, to get one gallon of beer, breweries use about four to seven gallons of water in their processes, including rinsing of equipment, etc. And there isn’t enough water, or not enough of the right kind of water.

California’s craft brewing industry is big. In 2012, according to the most recent data available from the California Craft Brewers Association, the industry contributed $4.7 billion to the economy and employed 44,000 people who earned $1.7 billion in wages. So maybe not the highest-paid jobs, at about 39k per year on average. But it’s a cool industry with hot sales.

Overall, the beer industry in the US is sick. Total sales dropped 1.9% to 196.2 million barrels in 2013. Per-capita beer consumption has been dropping relentlessly since 1981, from 26 gallons per year to about 19 gallons. The statistics of a miserable industry.

But craft brewers use Yankee ingenuity to create the best beers in the world. And people are buying them! In 2013, according to the Brewers Association, craft brew sales in the US jumped 17.2% to 15.3 million barrels, and exports soared 49%. The world is catching on to our beers!

Of the stagnant $100 billion beer market in the US, craft brewers have conquered $14.3 billion, at the expense of industrial brewers and imports, giving them a market share in volume of 7.8% and in value of 14.3%. The difference between the two is largely due to the premium product.

The just-released 2014 midyear production data for the January-June periods require a good swig of perhaps an amber for full appreciation of the flavor: they more than doubled in five years!

That kind of growth, at the expense of industrial brewing companies and imports, is logical. The beer tastes awesome. The price, though higher, is fair. The product is genuinely American, brewed with the best, often American-grown hop. And breweries are popping up everywhere. Craft brewers range from tiny brewpubs that only sell to customers who walk through the door to California’s largest, Sierra Nevada. In 1975, there was just one of them in the US. By mid-2014, there were 3,040.

That said, this number changes constantly and is most likely already wrong. Just because you know how to brew an awesome beer doesn’t mean you get to stick around. And others open their taps even while I’m writing this. Over those three decades, industrial breweries in the US shrank from 54 to 20, now mostly owned by foreign multinational corporations.

This is not a business for the faint of heart! Note how the Great Recession decimated craft brewers. And note what has happened since:

In the midst of this frothy expansion drive, with sales booming, and with the world watching in rapt attention what is transpiring in the US beer market, my crazy state of California, the state with the most craft brewers, has been hit by a devastating water shortage.

“We are at the maximum growth threshold here in California because of water,” Leon Sharyon, CFO of Lagunitas Brewing Co, told the LA Times. Lagunitas, which makes one of my many favorite IPAs at its Petaluma brewery, less than an hour north of San Francisco, uses about 2 million gallons of water a year from the Russian River that has been reduced to a trickle.

Solution for Lagunitas? Heresy! It expanded to … Chicago! Next to Lake Michigan, so that brewery won’t run out of water for a while. Sierra Nevada opened a brewery in Asheville, North Carolina, with plenty of water from the Smokey Mountains. Others are following the same strategy.

California brewers are trying to conserve water in their processes. Sharyon told the Times that they’d reduced water consumption by 10% over the last two years. And they’re doing something risky: they’re watering down, so to speak, the water from the Russian River with well water. If the water crisis continues to get worse, water regulators might require them to switch to well water entirely.

But there’s a hitch: the water from the Russian River is excellent for beer. Groundwater has an odd taste and is rich in minerals that impact the color and, God forbid, the flavor of my favorite brew.

“Grainy and hoppy styles could taste more astringent,” Sharyon explained. The hoppiest of these hoppy styles? My favorite, the India Pale Ale (IPA). So the company spent some money on a filtration system, hoping to get rid of the odd tastes.

Bear Republic in Cloverdale, a little over an hour north of San Francisco, also uses the Russian River for its water. But the water district capped it to 8 million gallons a year. “And that’s really affected our growth,” said Master Brewer Peter Kruger. They’d planned on growth of 35%, now cut to 15%.

So Bear Republic is also watering down Russian River water with groundwater. It’s installing filtration systems, in the hope of getting rid of the odd flavors. And they’re thinking about opening a brewery somewhere else with a “more stable water supply,” Kruger said. But that too could mess up the taste of their brews.

“Our river’s mineral content creates really excellent beer, and we are afraid of losing that,” he said. “We are praying it rains next winter.”

Done that for three years, and it hasn’t worked.

“If this drought continues for two, three more years, that could greatly impact the production and growth of our breweries,” lamented California Craft Brewers Association executive director Tom McCormick.

Small brewers might be in trouble. They don’t always have the resources to invest in water-conserving equipment. And the water shortage might cut into their booming production. Cismontane Brewing in Rancho Santa Margarita, Southern California, produces only 3,000 barrels a year. Now the water district put in place a voluntary 20% reduction in water consumption, which soon might become mandatory.

“Small brewers waste more water than the big guys because our equipment is less efficient,” said cofounder Evan Weinberg. Unless there’s “a big influx of water soon,” he and other small brewers will face “some serious issues.” They’ll have to pass the cost of water onto the beer lover. “Otherwise we will go out of business.”

That’s the fate awaiting beer lovers in the crazy state of California. Your favorite brew might get more expensive, though the price increases will be laundered from the CPI via the government’s inflation reduction machine, called hedonic regression. Its original water is going to be watered down with groundwater. Or it’s brewed in another state. Some of it might go away altogether. And what we have on our hands is a full-blown beer crisis.

Everything is rigged, we found out: stock markets, Forex, interest rates, gold, silver, oil…. After battling that rigged world all day, you finally get to take that first big gulp of beer to heal the wounds, knowing that it’s the one thing that hasn’t been rigged against you. Or so you’d think. Read….Turns Out, Even The Price of Beer Is Rigged

via Zero Hedge http://ift.tt/1n8fIkI testosteronepit

Yes, yes, we know: soon everyone will be driving a Tesla, and, perhaps, sooner Tesla will build its much-hyped, and so critical for its business model Gigafactory (although shouldn’t it be non-GIGA to go with non-GAAP… about which it had this to say: “In June, we broke ground just outside Reno, Nevada on a site that could potentially be the location for the Gigafactory. Consistent with our strategy to identify and break ground on multiple sites, we continue to evaluate other locations in Arizona, California, New Mexico and Texas.”). In the meantime, and just as the biggest wealth effect-creating (for the 0.1%) stock market of all time appears to be ending, here is Tesla’s quarter, and last few years, in three gigacharts.

Revenue: GAAP vs non-GAAP.

EPS: GAAP vs non-GAAP.

And most importantly, Free Cash Flow. There is only one type of these. And at this cash burn rate, Morgan Stanley will have to upgrade TSLA soon for another convertible offering.

via Zero Hedge http://ift.tt/1AEyXg3 Tyler Durden

Yes, yes, we know: soon everyone will be driving a Tesla, and, perhaps, sooner Tesla will build its much-hyped, and so critical for its business model Gigafactory (although shouldn’t it be non-GIGA to go with non-GAAP… about which it had this to say: “In June, we broke ground just outside Reno, Nevada on a site that could potentially be the location for the Gigafactory. Consistent with our strategy to identify and break ground on multiple sites, we continue to evaluate other locations in Arizona, California, New Mexico and Texas.”). In the meantime, and just as the biggest wealth effect-creating (for the 0.1%) stock market of all time appears to be ending, here is Tesla’s quarter, and last few years, in three gigacharts.

Revenue: GAAP vs non-GAAP.

EPS: GAAP vs non-GAAP.

And most importantly, Free Cash Flow. There is only one type of these. And at this cash burn rate, Morgan Stanley will have to upgrade TSLA soon for another convertible offering.

via Zero Hedge http://ift.tt/1AEyXg3 Tyler Durden

Phil Davis of Phil’s Stock World talks about the stock market, his expectations for the near future, and how he protects his portfolio from selloffs. Phil also outlines some option trade ideas. 

Click here to watch Phil’s interview on Money Talk with host Kim Parlee of Business News Network. 

Here are some photographic summaries of a couple option trade ideas. 

 

 

[To receive many of Phil’s option trade ideas, become a Phil’s Stock World member, free.]

via Zero Hedge http://ift.tt/1AEySZM ilene