Tag: finance

“The question is not ‘tapering’,” Marc Faber exclaims to his hosts on CNBC’s Squawk Box this morning, “the question is at what point will they increase the asset purchases to say $150 [billion] , $200 [billion], or a trillion dollars a month.” QE-4-EVA is here to stay, as Faber explained “every government program that is introduced under urgency and as a temporary measure is always permanent.” Simply put, “The Fed has boxed itself into a position where there is no exit strategy,” and while inflation may not be present in the ‘chosen’ indicators, Faber blasts, there’s been incredible asset inflation – “we are the bubble. We have a colossal asset bubble in the world [and] a leverage or a debt bubble.” There will be massive wealth destruction, he concludes, “one day this asset inflation will lead to a deflationary collapse one way or the other. We don’t know yet what will cause it.”

 

The Fed is Boxed In….

 

The world is in a gigantic bubble…

 

Back in April 2012, Faber said the world will face “massive wealth destruction” in which “well to-do people will lose up to 50 percent of their total wealth.”

In today’s “Squawk” appearance, he said that could still happen but possibly from higher levels because of the “asset bubble” caused by the Fed.

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

If there was ever a more complicated place in the world it’s Kenya. I just got back from my third trip there. It made me think about why they are so poor and we are so rich.

There are 42+ million people in Kenya and most of them are poor. The government says they are expanding at 4-5% per year. Annual GDP is only $71.4 billion. Apple had $156 billion in revenues in 2012. 40% of the workforce is unemployed. Per capita income is about $900 per year making one of the poorest countries on the planet. Yet the media there are brimming with optimistic reports of economic progress.

The capital, Nairobi, is a growing, sprawling city with an official population of 3,500,000 but it’s really much, much larger. There are large slums on the outskirts. While there is an emerging middle class and a top tier of 5,000 millionaires, most Nairobians are struggling.

It is not as if there has been no progress. There has been a lot of construction in and around Nairobi and real estate is in a boom phase. New shopping strip malls and housing developments serve the growing middle class. And many people (60% of the “poor”) have cell phones. More cars, more jitneys, and more buses clog the roads. And more inflation which robs people of their savings.

There are two foundations of their economy: agriculture and tourism. Tourism by far is the most important since it brings good jobs and foreign exchange. Tourism accounts for more than 50% of the economy. Half of farming is subsistence level only.

It makes you wonder. If things are so good, why are things so bad?

It isn’t the people. Many speak English and are well educated. But their talents are wasted because of a lack of opportunity. I discussed politics with a waiter who had wanted to be a biologist. A safari guide who speaks 3 or 4 languages, who is a trained and certified wildlife expert is paid $30 a month and relies on tips from generous tourists to get by. It is considered a very good job.

There are many explanations for poverty. One popular idea is Jared Diamond’s theory espoused in the book, Guns, Germs and Steel. He takes an historical look at why some parts of the globe thrived and some didn’t. His explanation for success was: the rise of grain agriculture in temperate zones, the decimation of non-temperate zone populations from diseases spread by temperate zone invaders, and the technology of advanced weaponry. Cultures living in temperate zones of the planet thrived and those elsewhere failed to grow beyond subsistence levels.

Diamond’s book was a response to a question from a New Guinean who asked him, “Why do you have so much cargo and we so little?” “Cargo” being pidgin for material goods. I believe that Diamond’s answer only goes so far. Those factors can explain many things in the dim historic past, but it is not as applicable today. It leaves out one really important thing: ideas. Or, to be more accurate, the right ideas.

For example, another question one can ask is: “Why do some societies in the temperate zones thrive and others fail?” Or, “Why do some societies in tropical zones thrive and others fail?” It’s not because technology isn’t known to poor societies. Everybody (almost) everywhere has access to this knowledge. The thing missing in Diamond’s theory are the sociological factors: the methods of human organization. Here I am talking about economic and political systems. These are the ideas the make us or break us.

The formula for success anywhere on the planet isn’t that difficult to discover. You need freedom. That is, solid property rights, a just legal system that protects property rights and the enforcement of contracts, and limited government and low taxation. Add in the personal freedom to do what you damn well please as long as you don’t abridge someone else’s rights. If you do these things, capital (wealth from savings) and an entrepreneurial spirit will rise and drive human progress. These are the ideas that emerged from the Enlightenment and culminated in the founding of the United States of America. It has worked everywhere it has been tried.

These are the things that Kenya and most African countries lack.

Since gaining independence from Britain in 1960, Kenya took the socialist path and the economy stagnated. Bad roads, bad communications, state owned industries, rising poverty, corruption. Basically they just spent the capital that had been accumulated during colonial times. Colonialism was bad but so were and still are the successive socialist-kleptocratic regimes that suck the country dry and keep them poor. They just raised the national sales (VAT) tax to 16% and everyone is complaining because prices have shot up. In 1989 impoverished China took a different road and now they are building roads in Kenya as part of their foreign aid (with a commercial ulterior motive, of course).

Everyone I talked to at “ground level” in Kenya said the number one problem is corruption. When you get down to the detail of what they really mean by that is that they lack the above mentioned freedoms needed for success. The courts are corrupt. The politicians are corrupt. The police are corrupt. The bureaucrats are corrupt. Crony capitalism is rampant. While they espouse the philosophy of “democracy”, that usually means the winners get to distribute political spoils to their cronies and fellow tribesmen.

How do you change that? Can you just change the system and expect human behavior to change overnight? Well, you’ve got to start somewhere. It won’t happen overnight, but if freedom breaks out in these countries, I believe things and people will change for the better. I believe that stripped down to our essentials, human beings behave pretty much the same. It’s all the crap that’s piled on top of us starting at birth that is the problem.

Free market capitalism is what I have been talking about here. It is what is called an emergent system, that is, a spontaneous social organization that emerges when the right conditions (freedom) are present. It is a ground up mostly self-regulating system. It’s not something that government invents (a top down system), but it’s the system that most closely matches human nature and allows individuals to reach their potential. Before you get too excited, recall the conditions of freedom I mentioned above require government to protect and enforce our human rights. It’s not easy; it takes time. And it’s not perfect, but as history has shown, it sure as hell beats anything else.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/Api6j7Ft2Yg/story01.htm Econophile

The high-beta honeys were not amused (despite another melt-up in NFLX into earnings) as the Russell 2000 underperformed (-0.25% on the day). The Dow and S&P ended practically unch, Nasdaq bid (helped by AAPL ahead of the product news tomorrow) and Trannies closed their highs of the day exuberating all the way… Treasury yields rose 2-3bps (steepening). FX was quiet with the USD very slightly higher (helped by JPY weakness) but AUDJPY was in charge of S&P 500 trading today. Oil dropped 1.6% closing back under $100 and Silver rallied 1.3%. Hedgers were active (6though clearly the selling was limited) as credit spreads and volatility markets saw protection buyers active.

 

Equity indices were quite notably divergent today…

 

But it was clear that macro overlays were being laid out once again in credit…

 

and in VIX…

 

Bonds quietly limped higher in yield but FX markets were dead…

 

with only AUDJPY (JPY weakness dominant) leading stocks…

 

Charts: Bloomberg

Bonus Chart: Apple catches up to Gold ahead of tomorrow’s product announcement

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/qxkWDUjgR7A/story01.htm Tyler Durden

And the hits just keep on coming for McDonalds. An animal rights organization is urging McDonald’s Canada to take a firm stand against what it calls “shocking animal cruelty” captured on a graphic video it says was taken at two Alberta farms, which shows dead hens rotting in the cages, and chicks being covered in feces. . As The Globe and Mail reports, McDonald’s, however, says while it does get eggs from Burnbrae along with many other Canadian companies, it says its eggs do not come from the farms referenced in the W5 story.

 

 

Via The Globe And Mail,

“They’re so crammed inside those cages they can’t spread their wings, they can’t walk, they can’t turn around, they can’t engage in any of their natural behaviour,” said Stephane Perrais, director of operations with Mercy For Animals Canada.

 

“They spend one year of their miserable life in there, basically producing eggs and after that time period, they’re considered spent by the industry because their productivity is declined, and then they’re slaughtered.”

 

The group says the footage was taken by an undercover investigator who was hired as a farm worker by Ku-Ku Farms and Creekside Grove Farms for 10 weeks in May.

 

The video also shows dead hens rotting in the cages, and chicks being covered in feces.

A statement said McDonald’s said it does not condone animal abuse by its suppliers.

 

…

 

“We care about the humane treatment of animals and believe they should be free from cruelty, abuse and neglect,” said spokeswoman Karin Campbell in the written statement emailed to The Canadian Press.

 

“Abuse is never tolerated in our supply chain and McDonald’s has strict policies in place concerning the treatment of animals that our suppliers must adhere to at all times. We also work with our suppliers and outside experts to continuously improve our standards and practices, both within McDonald’s and across the industry.”

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/8vGBXxvvsW8/story01.htm Tyler Durden

Submitted by Alasdair Macleod via GoldMoney.com,

China is now overtly pushing for the US dollar to be replaced as the world’s reserve currency.

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/ktM6UVgkNvU/story01.htm Tyler Durden

Across the entire curve, credit spreads on JCPenney are exploding. The curve is inverted with the market indicating an almost 50% chance of default within the next 2 years (specifically in 2014 as opposed to pre-2013 Xmas). The stock price is collapsing further (though we suspect a gaggle of analysts calls to catch the accelerating knife – just as we saw last time). At $6.30, this is the lowest stock price since March 1981, on the back of yet another downgrade (this time with a $1 target) by none other than the same Mary-Ross Gilbert who proclaimed the most recent quarter a success and suggested buying the debt in just August.

 

The CDS market is not painting a pretty picture for the future of JCP – 2Y CDS implies around a 50% probability of default (based on market standard recoveries – which we feel will be lower gven Goldman's 1st lien…)

 

and the stock is imploding even more…

 

Though there's always next week… this analyst hopes so (from Sept 25th):

 

$JCP: Why Brian McGough aka @HedgeyeRetail is a buyer of JC Penney here http://t.co/Xbc32aBFjG via @Hedgeye @KeithMcCullough

— Hedgeye (@Hedgeye) September 25, 2013

 

 

We’re buyers of J.C. Penney (JCP) on today’s sell-off. Let’s be clear about what kind of call this is, because it’s definitely not for the faint of heart.

 

We still know nothing about the long-term strategy or upcoming management transition, and are still living with the balance sheet baggage from the past two years.

 

This is a company with no square footage growth, where the average consumer could care less if it exists or not. (Sounds great, huh?).  But everything has a price.  And at $10, way too much credence is being given to the ‘terminal’ call.

 

We can say a lot of bad things about JCP, but we definitely don’t think it is terminal and our recent work suggests that much of the business lost is definitely recoverable.

 

As it relates to liquidity, we think that the only reason why the company would act now is to ensure that it has the best pool of CEO candidates possible (questions around liquidity would otherwise weed out the best candidates).

Here's another analyst from August:

"That's a sequential improvement from the down 16.6 percent in the first quarter. So I would say the numbers are closely in line," Mary Ross Gilbert, managing director at Imperial Capital, told CNBC shortly after Penney released its results. "We were [also] seeing a sequential improvement throughout the quarter. Comp sales were improving throughout the quarter."

 

…

 

"The debt, we think, is a great way to play the bet on J.C. Penney's turnaround," Gilbert said in a "Squawk Box" interview.

but then today…

Imperial Capital’s Mary Ross-Gilbert offers her answer by lowering her price target on JC Penney’s stock to $1, while cutting her rating on JC Penney’s bonds maturing in 2015-2018 to Sell. She explains why:

 

While we think JCP can be “turned around,” we are becoming increasingly concerned that without a “deep-pocketed” long-term investor providing financial and “halo” support, the company may strategically file for bankruptcy protection to conserve cash while it continues to execute a turnaround in 2014 and 2015. We continue to believe in the viability and sustainability of JCP, which with support from a significant investor and/or stronger than expected financial performance, could deliver equity-type returns (assuming they trade up to the low-to-mid 80s) to investors of the longer-dated bonds while potentially protecting the downside by hedging.

 

We are maintaining our Underperform rating on the shares, but we are lowering our one-year price target to $1 from $5. Our new $1 price target is based on the notional “option” value of the shares, given our increasing concerns the company may engage in a financial restructuring in 2014.

Meanwhile Citi nailed it:

"The turnaround is taking longer than we anticipated, and we are concerned  about a softening macro environment combined with deteriorating vendor relationships",  and of course "We maintain our EPS ests. but are lowering our target price to $7, down from $11 prev., based on an EV/Sales valuation methodology using our 2015 sales estimate." And it gets worse: "Where’s The Floor? — As a supplement to our EV/Sales valuation methodology, we have conducted a basic liquidation valuation, yielding $324M total value, or $1/share."

 

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/O5wkdEo9DKI/story01.htm Tyler Durden

Submitted by Claude Salhani via OilPrice.com,

Petro-dollars, the word used to describe the billions of dollars earned from the sale of oil and natural gas, have helped change the shape and future of many counties in the Middle East, usually for the better, but not always.

In a few short years Petro-dollars have helped shape the Gulf states into the modern and futuristic looking cities of the future that one finds in today’s architecture in Dubai, Doha and Riyadh.

But now those petro-dollars are being used to shape the political future of the region and to model specific policies in a number of countries, such as Syria, for example, where petro-dollars are hard at work today.

Saudi Arabia, for example is investing billions of its petro–dollars in an attempt at shaping the Syrian political landscape more in its favor and away from the Muslim Brotherhood, an organization that the Saudi and other Gulf states regard with contempt and fear. 

But after its brief string of successes in Egypt, Tunisia, Palestine, Syria, and to a lesser degree, Turkey, the MB now appears to be on the retreat.

Among the first signs that not all is well in the house of fundamental Islam comes amidst reports that Khaled Mashaal, the leader of Hamas is seeking to relocate from his current base in Doha, the capital of the oil and gas rich Gulf state of Qatar.

Although Hamas is denying this rumor, the Palestinian Islamist movement had also denied in the past similar reports that it was relocating to Qatar from Damascus in 2012, as indeed it had.
Should this report prove to be true it would sustain the fact that the Brotherhood is indeed on the retreat.

In the past 12 months alone the Brotherhood has suffered a number of serious setbacks. The group went from winning an election to holding power in Egypt, to being once again banned and driven underground.

In Tunis, similarly, the MB government that was voted into power after the fall of Zein el Adedine bin Ali, is now on the way out, as popular protests, much like in Egypt have forced the changes to take place.

And the inroads the MB was making in Syria seems to have receded after the intervention of Saudi Arabia. The petro-dollars are at work once again supporting the anti-Assad regime, but not those who tend to be too conservative and that the Saudis and the Emiratis know only too well will one day turn against them.

Riyadh, for one, is not about to forget the lesson of the returning “Afghan Arabs” that nearly toppled the royal house of Saud.

Riyadh also had to apply pressure on its smaller neighbor, Qatar, and “convince” the ruler Emir Hamed Bin-Khalifa, a strong supporter of the Muslim Brotherhood to step down in favor of his son, Tamim. The precise circumstances and reasons for the Qatari’s ruler sudden departure from power remain a mystery to this day.

With the son now in charge in Doha, Qatar’s financial support of the Brotherhood is virtually drying up.

In retrospect perhaps the rapid advance of the Muslim Brotherhood was a tad too fast in a part of the world that is unaccustomed to change. This rapid gallop frightened the ultra-conservatives regimes in Riyadh and Abu Dhabi, who then took steps to rectify what they did not like.

In the months that followed, the Brotherhood was forcibly removed from power in Egypt with help of Saudi and UAE petro-dollars.

And thanks to petro-dollars also supplied by Saudi Arabia and the UAE, the Muslim Brotherhood no longer seems to be about ready to remove Syrian President Bashar Assad from power. Not that the Saudis of the Emiratis have any great affection for Assad, quite to the contrary, they would like to see him go. And their petro-dollars are making sure of that.

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/xS1wxCYVHEI/story01.htm Tyler Durden

Newsflow is weak to non-existent. S&P futures volume is 40% below average for this time of day; and ranges across all asset classes are low. Is this the calm before tomorrow’s jobs report storm or the calm before storming even higher… The S&P 500 tested new all-time highs earlier (just after the US open) but is fading back. The Nasdaq and Trannies are outperforming with a notable drift lower in the almighty Russell (as momo names stutter – ahead of NFLX earnings maybe?). Treasury yields are modestly higher; the USD in unchanged (back from higher earlier); and Oil is down 1.4% from Friday’s close. Silver is up 1.5% while gold and copper are unchanged. Thera er two things of note: VIX remains divergent from stocks… and credit markets are not happy.

 

Stocks behaving quietly…

 

As VIX is well bid ahead of tomorrow’ potential angst…

 

and commodities are diverging…

 

and credit markets are rather notably not buying what stocks are drinking..

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FyS8pHJXXRA/story01.htm Tyler Durden

Newsflow is weak to non-existent. S&P futures volume is 40% below average for this time of day; and ranges across all asset classes are low. Is this the calm before tomorrow’s jobs report storm or the calm before storming even higher… The S&P 500 tested new all-time highs earlier (just after the US open) but is fading back. The Nasdaq and Trannies are outperforming with a notable drift lower in the almighty Russell (as momo names stutter – ahead of NFLX earnings maybe?). Treasury yields are modestly higher; the USD in unchanged (back from higher earlier); and Oil is down 1.4% from Friday’s close. Silver is up 1.5% while gold and copper are unchanged. Thera er two things of note: VIX remains divergent from stocks… and credit markets are not happy.

 

Stocks behaving quietly…

 

As VIX is well bid ahead of tomorrow’ potential angst…

 

and commodities are diverging…

 

and credit markets are rather notably not buying what stocks are drinking..

 

Charts: Bloomberg

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/FyS8pHJXXRA/story01.htm Tyler Durden

Money put into the system would, in normal times multiply aggressively in use (e.g. Fed to bank, bank to business, business to consumer, consumer to restaurateur, restaurateur to farmer, farmer back to bank etc etc.) In reality, as Citi notes, there are often even more legs to this multiplier. However when QE puts artificial support under the Equity and Bond market you get misallocation of capital and no velocity of money. If ever there was a chart of the gross misallocation of capital caused by QE, this has got to be it…

Velocity of Money (M2) and Core PCE- A once in 50 years dynamic.

• The last time both were as low as this was 1965 (Nearly half a century ago)
• Core PCE stands at 1.23% having seen a range in the last 54 years of 0.95% to 10.25% (Inflation floor anybody???)

Inflation does not show up in the true economy but in paper asset prices instead. (that worked well in prior cycles)

One might even argue that as a consequence QE actually stifles economic growth, employment creation and inflation.

The trouble with that assessment (if correct) is that Ben does not believe that premise and neither does Janet.

(Quite the contrary) If the premise is potentially true that QE is actually a negative for the economy/savers etc. then more QE will not only not solve the problem, but exacerbate it. It therefore becomes a negative feedback loop that we cannot get out of until the Fed has the nerve to stop QE no matter what the economic backdrop. Under Janet Yellen that scenario is highly unlikely. 

(Translation: It aint happening)

 

Source: Citi

via Zero Hedge http://feedproxy.google.com/~r/zerohedge/feed/~3/YOnkCR6lygU/story01.htm Tyler Durden