In the great fiscal scheme of things, October 22, 1981 seems like only yesterday. That’s the day the US public debt crossed the $1 trillion mark for the first time. It had taken the nation 74,984 days to get there (205 years). What prompts this reflection is that just a few days ago the national debt breached the $18 trillion mark; and the last trillion was added in hardly 365 days. I remember October 1981 perhaps better than most because as the nation’s budget director at the time I had some splain’ to do. Ronald Reagan had waged the most stridently anti-deficit campaign since 1932 when, ironically, FDR promised a balanced budget while denouncing Hoover as a “spendthrift”. Likewise, Gov. Reagan had denounced Jimmy Carter’s red ink and promised a balanced budget by 1983. Continue reading
I hear so much about inflation and deflation, about which is bad and which is good that the debate becomes mind numbing and confusing at best, even to those of us with very strong backgrounds in economics. It must be absolutely overwhelming to folks who’s talents and focus are in other fields. Yet it is important to all of us in our day to day lives. For instance, the official CPI suggests consumer prices are inflating by about 1.5% per year (approximately). Yet if you look at the things all consumers must have simply to survive e.g. food, shelter, clothing, medical care, heat and electricity, transportation and income we see a very different story. I pulled the following chart from Zerohedge.
So what we see is that for all things necessary for survival, with the exception of gasoline and income, prices have moved higher. So while it becomes ever increasingly expensive for you and your family simply to stay alive you are making less and less income to cover those bills. But on the bright side, the stock market is at all time highs and so you’ve got to feel good about that right? Well that is unless you are in the bottom 80% of income brackets, in which case you actually have effectively no assets in the financial markets. But maybe you know some people who do and for them you are likely very happy, so there’s that, right? Continue reading
Submitted by Bill Bonner – Chairman, Bonner & Partners
E-commerce giant Amazon.com has raised $6 billion in debt financing. Investors readily throw their money into the River of No Returns.
Lenders are demanding a yield of 3.8% for Amazon’s 10-year bonds. That’s 150 basis points over the US Treasury’s 10-year borrowing costs. (A basis point is 1/100th of one percentage point.)
Amazon’s bond buyers worry neither about the return on their money nor the return of their money.
Holders of the company’s stock are even more sans souci. If you look up Amazon’s P/E ratio, you’ll find it listed as N/A – for “non-applicable.” That’s because the company is losing money.
After 20 years, Jeff Bezos’s online marketplace has never learned how to make a profit. The last quarterly report showed it with losses of about $1 a share – or about $2.50 on every hundred dollars of sales. Continue reading
If “investors” have notoriously short attention spans, then surely those in and of Europe are making a case to be classified as something entirely new, different, and worse. It is now just one day shy of six months ago that the latest central bank schematic was unleashed to the universal cheer of “markets” and economists alike. The ECB wasn’t fooling around anymore, as Mario Draghi had overcome “the Germans” and pushed the deposit rate negative.
While the world’s first instance of a major negative nominal interest rate was intended as shock to expectations and even sensibilities, it was accompanied by other methodologies intended upon coupling that negative rate with the wildly sought balance sheet expansion. Using the LTRO acronym, but pinning upon a qualifying “T”, the ECB would also end the sterilization of its seemingly ages-old SMP program (2010 while numerically not far away is actually two crisis cycles in the past). The message was unmistakable that “stimulus” was back in a big way.
And that was exactly how it was received.
European stocks surged to a fresh 6½-year high, led by a steep rise for banking stocks, before giving up part of their gains. The Stoxx Europe 600 closed 0.4% higher. The banking subindex added 0.6% having traded nearly 2% higher earlier in the session.
Germany’s DAX index closed 0.2% higher at 9,947.83, having earlier broken the 10,000 mark for the first time. Italy’s FTSE MIB ended 1.5% higher, though it was up more than 2% during the day.
Euro-zone bonds in former crisis spots rallied. Spanish and Italian 10-year yields fell to 2.82% and 2.93% respectively, short of recent record lows. Yields fall as prices rise.
Inside the Treasury Department, the Office of Financial Research has grown to 225 employees, though that may be just a concerning (bureaucracy) as it is laudable (serious effort). Incorporated by Dodd-Frank, the agency inside the agency is dedicated to “Wall Street Reform”, at least that was the heading upon its old website. At its new virtual location, OFR projects its mission as, “established by Congress to serve the Financial Stability Oversight Council, its member agencies, and the public by improving the quality, transparency, and accessibility of financial data and information; by conducting and sponsoring research related to financial stability; and by promoting best practices in risk management.”
In fact, OFR has been one of the few sane voices in an otherwise byzantine mess of over-regulation and contradictory (and counterproductive) systems. The OFR’s research, whichI have referred to before, actually seems genuinely concerned and, more importantly, capable of at least outlining the contours of the modern banking and financial system. They have been warning about system liquidity factors, even ironically related to Dodd-Frank itself, for some time.
Their latest offering is pretty much more of the same, with the exception of having moved from theory to fact. October 15 remains a marker about that which is not spoken much by central banks, economists and especially media commentary. The reasons are simple, as they make plain about their own conclusions – as this unambiguous title in the Wall Street Journal shows, US Watchdog Sees Risk of Repeated Liquidity Crunches. Such an exclamation is so contrary to the “narrative” that it must be given as little attention as possible. Continue reading
DPC Pittsburgh by Night 1907
News reports about developments in the oil markets are coming fast and furious, and none of them indicate any stabilization, let alone rise, in oil prices. Quite the contrary. There’s a very large amounts of extra barrels flowing into the market, which is just, as one analyst puts it“even more oil flooding the market that nobody needs.” Saudi Arabia looks set to battle for sheer market share, even if it sends strangely contradictory messages.
While the US shale industry aggressively tries to convey an attitude based on confidence and breakeven prices that suddenly are claimed to be much lower than what seemed common knowledge until recently. Bloomberg says today that most shale is profitable even at $25 a barrel, and we might want some independent confirmation and/or analysis of that. Just hearing the industry claim it seems a bit flimsy; they have plenty reasons to paint the picture as rosy as they can get away with. Continue reading
Submitted by Mark O’Byrne – Founding Partner of GoldCore
Despite the worst sentiment towards gold we have seen since the brief 30% price fall in 2008, gold continues to eke out gains in all major currencies. So far in 2014, gold is 14.3%, 12.3%, 5.8% and 0.4% higher in japanese yen, euros, sterling and dollars respectively (see chart).
Gold is again acting as a hedge against currency weakness and the ongoing devaluation of currencies as stealth currency wars continue. Overnight, gold rose to over EUR 986/oz and looks set to challenge the significant and important level of resistance that is EUR 1,000/oz due to euro weakness and concerns that Draghi may launch the ECB money printing ‘Bazooka’ in 2015. Continue reading