Did US Macro Just Jump The Shark?

For the past five years there has been a very clear and significant cycle to US macro data – a slight rise to start the year, notable weakness into the middle of the year, a rapid recovery into the fall, then generally flat to year-end. A year ago, we explained this cycle appears to be created by government agencies need to spend, spend, spend their budgets out ahead of fiscal year-end (Sept).

 

 

This year has been no different, aside from the knee-jerk higher in macro data – somewhat shocking in its magnitude to 'every' economist with 3, 4, and 5-sigma beats in many data – came a little earlier but to the same level of past year's exuberance (as perhaps Ex-Im concerns, Fed concerns, and election concerns sparked earlier-than-usual spend-down by agencies).

The last few weeks have seen US Macro surge faster compared to expectations that at any time since the initial takeoff from the 2009 lows… and note, every time we surge at this pace, US Macro tops out!

 

As in past years, this spike in activity is extrapolated by the smartest people in the room, leaving the reality to miss expectations for the rest of the year. A glance at the chart above might suggest, we just jumped the shark once more in US macro data for 2014…

*  *  *

As we concluded previously,

This begs the question: is the only reason why the economy tends to pick up momentum dramatically as the summer ends just a function of a surge in government spending permeating the broader economy as agencies scramble to spend all the money they have before the end of the September 30 Fiscal Year End (just so they get allocated the same or greater budget in the coming fiscal year), which subsequently plunges or is outright halted as the case may be right now?

 

If so, it would explain so much, and certainly why year after year, the US economy seems to pick up in the mid-to-late Q3 period, only to dramatically fade away in the coming months, as government spending goes from a waterfall to a trickle.

 

It would also put the government's role in generating transitory periodic spikes in economic output under a microscope, especially since it is so clearly staggered to recur every September as one after another government agency spends like a drunken sailor. And if that is the case, how long until the BLS or some other agency (upon reopening of course) is taken to task to normalize not only for hedonic indicators and climate-related seasonal factors, but also for what is now clearly an annual aberration of economic output trends?

*  *  *




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IQ, IP and 8 Commandments of Corporate Governance

By: Chris Tell at: http://ift.tt/146186R

Recent dealings with a company led me to think about the relationship between corporate governance, creativity, innovation and what it takes to create or indeed wreck a successful enterprise.

A result of having been involved in well over 100 private equity transactions (I’ve long ago stopped counting), Mark no doubt a similar number, has been a lot of lessons learned and a particular methodology for choosing investments. Each day I learn more and I’m far from perfect. I only hope that I keep getting better.

One of our pillars of investment methodology has always been to focus very heavily on management in any company we invest our capital into. I’ve seen fabulous ideas run by idiots and they have a near 100% failure rate. I’ve also seen mediocre ideas run by very talented smart people succeed beyond all expectations. Clearly we need to work with good people, period.

Albert Einstein famously commented that “Creativity is intelligence having fun”.

But what exactly is creativity?

I’d define it as an ability to create meaningful ideas. These ideas brought to fruition bring value to peoples lives and people pay for value. In monetary terms this is known as intellectual property or IP. It is a critical element worth mentioning as the vast amount of value in today’s world resides in intellectual property. Additionally, IP is mobile. Governments, organizations and individuals who try to trap IP by force are facing a tough challenge in our modern world. IP can move across borders in minutes without an individual leaving their sofa.

Mark and I own some businesses which are 100% mobile. They are domiciled where it is most attractive for them to be domiciled and this can be changed in a matter of weeks if not days should the need arise. These businesses are driven by IP and are far from abnormal. They are, in fact, becoming the norm.

Consider companies such as Apple, Google or even Glaxosmithkline. What and where is the value in Apple? I’d suggest it is in the IP the company has built. The products are assembled in China anyway and that certainly isn’t where the value lies. Apple’s products could be assembled in any number of countries which provide competitive labour costs. The IP, however, can move anywhere.

For any company their challenge is to attract talent, creativity and skill. They do this by creating an environment of openness, fairness and opportunity. A company therefore needs strong values and good governance. Without good governance talented people will soon leave as their skills will not be allowed to flourish. What is needed is an environment conducive to flourishing ideas. Ideas die when they’re not put to use. Ideas die if there is no sustenance for them to grow and flourish. This sustenance is what is provided by investors in the form of capital and corporate infrastructure in the form of governance.

Corporate governance is a favourite topic of Richard Chandler. If you’re not familiar with the Chandler Brothers you’re likely not alone. These two Kiwi gentlemen are my heroes. Extremely secretive, contrarian, driven, principled investors who invest their own capital and don’t care for the limelight or what others think. They are at heart value investors often focusing on turnaround opportunities.

Over a span of some 20 years the Chandler brothers took a $10 million sum of capital and have parleyed that into over $5 billion. They are amongst the most successful investors in history yet they are virtually unheard of by the mainstream. My kinda guys.

I could discuss the Chandler brothers all day long but suffice to say their influence on me was one of the many catalytic reasons for the formation of Seraph, a syndicate of High Net Worth investors who together with Mark and I, invest in early stage proprietary private equity opportunities.

Suffice to say the Chandlers focus a lot of attention on management and though they’ve often invested in companies with poor management they’ve done so in order to replace those management teams, turn the companies around and reap the rewards. They are probably THE most successful strategic narrow focused private equity investors I know of.

Richard Chandler has a list of principles of good corporate governance and I’d like to share them with you today.

The Chandler Corporation’s Principles of Good Corporate Governance:

  1. Commerce and capital are based on trust. Capital will naturally flow to markets where there is a fair and impartial application of just laws. Governments have a responsibility to create a trust-based economy that protects investor property rights through the rule of law being applied without discrimination.
  2. Good corporate governance rests on the Cardinal Principles of integrity, transparency, and accountability.
  3. Prosperity flows from a partnership among shareholders, management, customers, and regulators. Management’s role is to create long-term shareholder value as well as social value through the productive use of capital and resources in an ethical manner.
  4. Management has a social responsibility to respect and nurture the physical, economic, moral, and social environment within which the company operates.
  5. Shareholders are owners. They must have the attendant rights and responsibilities of ownership. A company’s structure should be based on the principle of “one share equals one vote.” Shareholders are responsible for electing the board of directors which, in turn, appoints the company’s management. Responsible shareholders provide oversight of management’s performance.
  6. Good regulations support the Cardinal Principles. They enable shareholders to exercise their oversight responsibilities without burdensome and impractical rules and procedures.
  7. Management is accountable to shareholders for the productive use of the capital entrusted to them and for their financial and ethical performance.
  8. Capital is a valuable resource which must be prudently managed. When management cannot deploy capital productively in the business, it should be returned to shareholders.

I think good corporate governance is a bedrock on which a company can let its intellectual creativity and innovation flourish. I liken it to the compost my wife is putting into our vegetable patch for the coming spring planting.

– Chris

 

“I think Asia is the best place to be for the next 20 years.” – Richard Chandler




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If You Like Your “Boots On The Ground”, Here’s Even More – Obama To Send 350 Troops To Iraq

Just hours after the beheading of a 2nd American journalist, The White House has issued a statement:

  • *U.S. TO SEND ABOUT 350 MILITARY PERSONNEL TO IRAQ: WHITE HOUSE
  • *WHITE HOUSE SAYS ADDITIONAL FORCES WON’T SERVE IN A COMBAT ROLE

With American non-combat, humanitarian, advisers now being dispersed to the four corners of the world for non-combat, humanitarian, advisory roles; one wonders how long it will be before someone asks President Obama just what these peace-keeping non-combat personnel will be doing in their role “to protect diplomatic facilities and personnel in Baghdad.”

 

 

As Politico reports,

President Barack Obama has authorized the Pentagon to send about 350 more troops to Iraq, the White House announced this evening.

 

The Defense Department had been considering a request from the State Department for the additional forces to protect “diplomatic facilities and personnel” in Iraq, the White House said. “These additional forces will not serve in a combat role.”

 

Pentagon press secretary Rear Adm. John Kirby said the new detachment would increase the total number of U.S. troops “augmenting diplomatic security in Iraq” to about 820. The new force includes a headquarters element, medical personnel, helicopters and “an air liaison team,” Kirby said. About 55 troops who have been in Baghdad since June will “redeploy” elsewhere in Central Command as part of the move.


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Memo To Washington: Iraq Is Not A Nation And You Can’t Build One There With Bombs

Submitted by David Stockman via Contra Corner blog,

Washington’s strategy in Iraq is in shambles, but not just because America’s spanker-in-chief is really a wimp at heart. The problem is far more generic. To wit, the geographic territory of Iraq is not a nation; it is an arbitrary series of lines on a map drawn 100 years ago by dandies in the foreign offices of two fading empires (the British and the French) – which lines encircled numerous tribes, ethnicities and religious confessions which had no interest in sharing a common statehood.

In the subsequent century, the warring peoples corralled within the Sykes-Picot boundaries were ram-rodded into a tenuous co-existence by a series of brutal monarchs, generals and dictators, backed up by British and American occupiers. But then the neo-con geniuses in the George W. Bush Administration hung the last dictator and the poll readers in the Obama White House had the good sense to adhere to their campaign pledge and bug out.

They left behind $25 billion in military training and state-of-the-art warfare equipment, but neither a dictator nor a nation. Indeed, under the later heading they had endeavored to build a nation where there had been none, but ended up liquidating the machinery – the Republican Guards and the Baathist political party—that had enforced co-existence with machine guns and poison gas canisters.

Foolishly claiming America’s job was done at the end of 2011 when the last GIs boarded transports out of Bagdad,  Barrack Obama was actually opening the gates of hell without a clue as to the furies that would soon come swarming through. Well, they are all here now with blood soaked hands grasping their weapons and agitated tongues issuing the spittle of revenge and historic enmities.

Yet the foolish man in the White House and his historically illiterate advisors keep banging the same old failed lever. Namely, they are once again attempting to deploy bombs, dollars and hortatory commands to cajole and herd Sunni, Shiite, Kurds and numerous other sectarian and tribal fragments from the time warp of history into a common polity—-a purported nation that would do Washington’s bidding in the ancient lands of Mesopotamia.

So doing, they are attempting to mobilize the alleged Iraqi nation against the freshly minted threat of the Islamic State. But yesterday’s news about the relief of the ISIS siege on the northern town of Amirli  underscores how truly senile and clueless the Washington War party has actually become.

Yes, it was American bombers who spared the 17,000 Shiite Turkmen besieged there of the horrible prospect of a Sunni conversion at the sword. Consider, however, the associated and allied forces on the ground which essentially observed and reported the flight of the ISIS fighters from the aerial onslaught.

There was the Kurdish Peshmerga army that for years occupied a high rank on the State Department’s list of terrorist organizations. And also on hand were various and sundry Shiite militias—–many of which have been aligned, funded or even directed  from the headquarters of the Axis of Evil, the allegedly terrorist nation of Iran. Indeed, as one Sunni politician confessed to a Wall Street Journal reporter:

“We don’t really have an army. Maliki just created a sectarian army, working with militias,” said Hamid Al Mutlaq, a prominent Sunni politician. “A lot of criminals, killers and bad people were included.”

Shiite militias such as the Badr Corps, the Hizbullah Brigades, Asaib Ahl Al Haq and the Mehdi Army, have all been accused of abuses against Sunnis.

But the frosting on the cake came from Washington’s former man in charge—outgoing prime minister, Nouri al-Maliki.  Making his last hurrah, he showed up at Amirli praising the Shiite militia men for their heroics—-perhaps including those who only weeks earlier wiped out 70 Sunni worshippers in a nearby town—while failing to even mention the American warplanes which had actually done the job or the Peshmerga that have actually carried the fight against ISIS in the north.

As if to remind the world that there is actually no such thing as an “Iraqi army” but only the armed Shiite in Iraqi uniforms or their own militia, Maliki called this wholly transient and irrelevant relief of one tiny town among the checkerboard of vestigial religious sects which occupy the upper Tigress-Euphrates Valley “a second Karbala”.  Well, no wonder the Sunni are alienated! That’s the battle of Gettysburg on steroids. Its where the 13-century long schism between the Sunni and Shiite all started.

As for the retreating ISIS warriors, never mind that their ranks were formed during the US engineered “surge” in Anbar province in 2007-2008 and the CIA training camps for Syrian rebels  in Jordan during more recent months. At least the American bombers did destroy a few more American Humvees.

And that’s actually the point. American bombers can destroy the equipment left behind from the Bush occupation, but that’s about all. The second battle of Karbala! Please, can Washington possibly get a more poignant reminder that it cannot bomb or bribe an Iraqi nation into existence?

Indeed, it is time for Washington to learn to celebrate the letter “P”. It stands for partition. Let the Kurds have their nation in the northeast and make their political and economic arrangements—already well advanced–with Turkey.  Let the south of Iraq congeal into a Shiite province—-loosely or otherwise affiliated with Iran, which together might form an effective barrier to the expansionary ambitions of the Islamic State.

And finally, let ISIS try to govern 8 million people in the dusty villages and impoverished desert expanse of the Euphrates Valley by means of the sword and medieval precepts of Sharia law. The resulting “blowback” from the bestirred people of the ISIS occupied lands will do more for the safety and security of the American people than all the drones and bombers that Washington could send to forge a puppet nation within borders that have already been deposited in the dustbin of history.




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The One Thing The Bank Of Japan Apparently Can’t Print More Of

First it was socialist utopia Venezuela and now Keynesian-economics favorite playground Japan is concerned about a troubling problem – fear of a toilet-paper shortage. As WSJ reports, the Ministry of Economy, Trade and Industry is encouraging families to stockpile at least one month’s worth of toilet paper in the event of a major disaster, as they “fear there would be a serious shortage of toilet paper nationally.” Ironic really, given Shinzo Abe’s past ‘problems’.

As WSJ reports, the government is using the day to advise families to stock up on toilet paper.

Using the motto, “If you prepare, no despair,” the Ministry of Economy, Trade and Industry is encouraging families to stockpile at least one month’s worth of toilet paper in the event of a major disaster. The ministry is holding an exhibition at its headquarters and sponsoring panel discussions on the subject of toilet paper.

 

According to the ministry, “The biggest supply problem during the 1995 Hanshin Earthquake was not food or clothing, but toilet paper.”

 

 

If an earthquake strikes central Japan, the shortages could become even more severe.  Forty percent of the nation’s toilet paper is produced in Shizuoka prefecture.  “If an earthquake in the area affected Shizuoka, we fear there would be a serious shortage of toilet paper nationally,” says a METI news release.

 

Shizuoka-based Kasuga Paper Industry Co. has established a “Secure Supply System” for its toilet paper, allowing concerned families to preorder toilet paper for ready dispatch in case of disaster.

*  *  *

As their currency rapidly becomes as worthless as the bathroom tissue, it’s ironic really that this fear has arisen… given Shinzo Abe’s past ‘problems’.

*  *  *

On a side-note, we suspect they will be needing a lot more TP if this incredible analog continues… from the last time Japan hiked taxes… (as we warned in April)




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Tonight on The Independents: The Latest ISIL Beheading, Grover Norquist Tells All About Burning Man, Report from the Russo-Ukrainian Mini-war, Leaked Nudes, Revolving Cantor, NSA, Minimum Wage, Plus After-show!

Tonight’s episode of The
Independents
(Fox Business Network, 9 p.m. ET, 6 p.m. PT,
with re-airs three hours later), like so many others of late,
begins with some gruesome business: the
news
that American journalist Steven Sotloff is the latest to
have his head sawed off by the Islamic State (ISIL). Joining to
discuss the evolving ramifications and descending Mideast chaos are
Party Panelists Carrie Sheffield
(Forbes
contributor
) and Joe DeVito (comedian).
Later in the show, the duo is slated to gab about the spate of

leaked celebrity nudes
, and—even more searing to the naked
eye—Eric Cantor’s
posh new gig at Moelis
.

Have you heard about Russia’s slow-motion invasion of
Ukraine
? Michael
Weiss
, of the Russian-media-reading The Interpreter,
will join live from Kiev via some sort of crude telecommunications.

President Barack Obama
and every mediagenic mayor from
L.A. to Chicago
spent Labor Day making calorie-free promises
about what a boosted minimum wage would do to the economy; the
co-hosts will react.

Remember how anti-tax activist and known moral monster Grover
Norquist announced intentions to
ruin Burning Man
through his attendance this year? Here’s an
audio-visual reminder:

Norquist will be on the show to report back what he learned
among the tech-hippies. The NSA’s data-hoovering apparatus was

in court
today; Kmele Foster will explain the import. And the
online-only aftershow begins at http://ift.tt/QYHXdy
just after 10.

Follow The Independents on Facebook at http://ift.tt/QYHXdB,
follow on Twitter @ independentsFBN, and
click on this page
for more video of past segments.

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The Eurozone Could Be A Problem For Stocks

Submitted by Lance Roberts of STA Wealth Management,

 




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A Divided World

Yesterday we showed how ‘isolated’ Russia was (if you chose to look only at isolating parts of the world). Today, we glimpse at the world’s views on China vs US… As The Global Post notes, we know that only 35 percent of Americans have a favorable view of China. But what about the rest of the world?

 

 

Source: Global Post

*  *  *

Who’s isolated now?




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Will Rand Paul Have to Risk His Senate Seat for the Presidency?

The Louisville, Kentucky’s
Courier-Journal highlights one
big potential roadblock
to Rand Paul’s likely run for
president: that it might prevent him from running simultaneously
for his Senate seat, which he’d have to do in 2016 as well. (If he
wanted to remain a senator, that is.)

A new poll shows Kentuckians might not be inclined to change
existing state election law to make things easier for Paul:

only 15 percent of Kentucky registered voters think Paul should
run for both offices, the survey finds. By a 24-22 percent split,
slightly more believe he should run only for his Senate seat than
make a bid for the White House. And a third of voters oppose the
freshman senator running for anything.

Paul enjoys a 39 percent favorability rating in the state, the
poll shows. Thirty-two percent of registered voters view the
senator unfavorably, while 24 percent say they are neutral.

The National Journal
wrote last month
with more on the situation Paul finds himself
in—and why the actual polled will of the people of Kentucky might
not be what matters:

Under current Kentucky law, Paul must choose to be on the
ballot for one or the other. His Republican allies in the
Kentucky state Senate have already pushed through a measure to let
him run for both, but it has languished in the
state’s Democratic-controlled House.

“Our position is that a man who can’t decide which office to run
for isn’t fit for either office,” said Democratic Kentucky House
Speaker Greg Stumbo. “I don’t think that bill will ever see the
light of day as long as I hold the gavel.”

Paul has been helping Kentucky Republicans fight this year to
win back control of the state House to pave the way for him. Lyndon
Johnson successfully got Texas law changes in 1960 to allow him to
run for both the Senate and the presidency/vice presidency, the
National Journal notes.

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Guest Post: How Can You Tell Whether Russia Has Invaded Ukraine?

Submitted by Dmitry Orlov via ClubOrlov blog,

Last Thursday the Ukrainian government, echoed by NATO spokesmen, declared that the the Russian military is now operating within Ukraine's borders. Well, maybe it is and maybe it isn't; what do you know? They said the same thing before, most recently on August 13, and then on August 17, each time with either no evidence or fake evidence. But let's give them the benefit of the doubt.

You be the judge. I put together this helpful list of top ten telltale signs that will allow you to determine whether indeed Russia invaded Ukraine last Thursday, or whether Thursday's announcement is yet another confabulation. (Credit to Roman Kretsul).

Because if Russia invaded on Thursday morning, this is what the situation on the ground would look like by Saturday afternoon.

1. Ukrainian artillery fell silent almost immediately. They are no longer shelling residential districts of Donetsk and Lugansk. This is because their locations had been pinpointed prior to the operation, and by Thursday afternoon they were completely wiped out using air attacks, artillery and ground-based rocket fire, as the first order of business. Local residents are overjoyed that their horrible ordeal is finally at an end.

 

2. The look of military activity on the ground in Donetsk and Lugansk has changed dramatically. Whereas before it involved small groups of resistance fighters, the Russians operate in battalions of 400 men and dozens of armored vehicles, followed by convoys of support vehicles (tanker trucks, communications, field kitchens, field hospitals and so on). The flow of vehicles in and out is non-stop, plainly visible on air reconnaissance and satellite photos. Add to that the relentless radio chatter, all in Russian, which anyone who wants to can intercept, and the operation becomes impossible to hide.

 

3. The Ukrainian military has promptly vanished. Soldiers and officers alike have taken off their uniforms, abandoned their weapons, and are doing their best to blend in with the locals. Nobody thought the odds of the Ukrainian army against the Russians were any good. Ukraine's only military victory against Russia was at the battle of Konotop in 1659, but at the time Ukraine was allied with the mighty Khanate of Crimea, and, you may have noticed, Crimea is not on Ukraine's side this time around.

 

4. There are Russian checkpoints everywhere. Local civilians are allowed through, but anyone associated with a government, foreign or domestic, is detained for questioning. A filtration system has been set up to return demobilized Ukrainian army draftees to their native regions, while the volunteers and the officers are shunted to pretrial detention centers, to determine whether they had ordered war crimes to be committed.

 

5. Most of Ukraine's border crossings are by now under Russian control. Some have been reinforced with air defense and artillery systems and tank battalions, to dissuade NATO forces from attempting to stage an invasion. Civilians and humanitarian goods are allowed through. Businessmen are allowed through once they fill out the required forms (which are in Russian).

 

6. Russia has imposed a no-fly zone over all of Ukraine. All civilian flights have been cancelled. There is quite a crowd of US State Department staffers, CIA and Mossad agents, and Western NGO people stuck at Borispol airport in Kiev. Some are nervously calling everyone they know on their satellite phones. Western politicians are demanding that they be evacuated immediately, but Russian authorities want to hold onto them until their possible complicity in war crimes has been determined.

 

7. The usual Ukrainian talking heads, such as president Poroshenko, PM Yatsenyuk and others, are no longer available to be interviewed by Western media. Nobody quite knows where they are. There are rumors that they have already fled the country. Crowds have stormed their abandoned residences, and were amazed to discover that they were all outfitted with solid gold toilets. Nor are the Ukrainian oligarchs anywhere to be found, except for the warlord Igor Kolomoisky, who was found in his residence, abandoned by his henchmen, dead from a heart attack. (Contributed by the Saker.)

 

8. Some of the over 800,000 Ukrainian refugees are starting to stream back in from Russia. They were living in tent cities, many of them in the nearby Rostov region, but with the winter coming they are eager to get back home, now that the shelling is over. Along with them, construction crews, cement trucks and flatbeds stacked with pipe, cable and rebar are streaming in, to repair the damage from the shelling.

 

9. There is all sorts of intense diplomatic and military activity around the world, especially in Europe and the US. Military forces are on highest alert, diplomats are jetting around and holding conferences. President Obama just held a press conference to announce that “We don't have a strategy on Ukraine yet.” His military advisers tell him that his usual strategy of “bomb a little and see what happens” is not likely to be helpful in this instance.

 

10. Kiev has surrendered. There are Russian tanks on the Maidan Square. Russian infantry is mopping up the remains of Ukraine's National Guard. A curfew has been announced. The operation to take Kiev resembled “Shock and Awe” in Baghdad: a few loud bangs and then a whimper.

Armed with this list, you too should be able to determine whether or not Russia has invaded Ukraine last Thursday.




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