Inventing the Individual, by Larry Siedentop, Belknap Press, 2014 I lived in Morocco a few decades ago and needed some furniture for our apartment. A college student I had befriended, Hamid, offered to take my cash and negotiate with the dealer for me while I drank coffee in a nearby qahwa because, as he said, the price of the furniture would triple if the merchant glimpsed an American within a block of his store. I hesitated to take Hamid’s offer only because I didn’t want to put him to so much trouble, but he mistook my pause for distrust. So he assured me that he could not cheat me because I had eaten dinner with him and his family and therefore enjoyed a status similar to that of a family member. No Moroccan can cheat a family member or anyone who has eaten at their table. I gave Hamid my cash and later returned home to find a nice selection of furniture at a good, Moroccan, price. Later, I met the owner of a construction firm who enlightened me further on business ethics in Morocco. He told me he spent a large part of his time thwarting the efforts of suppliers, customers, and employees to cheat him. The cleverness that went into dreaming up new ways to cheat him surprised me. He confirmed what Hamid had told me: cheating others is not considered unethical at all but a sign of an astute businessman. But cheating family members is immoral. Moroccan business ethics might be appalling to westerners, but ancient Greeks and Romans would have understood and applauded them according to Larry Siedentop in his latest book, Inventing the Individual: The Origins of Western Liberalism. In Siedentop’s words, the book is ‘… a story about the slow, uneven and difficult steps which have led to individual moral agency being publicly acknowledged and protected, with equality before the law and enforceable ‘basic’ rights.’
Blogger Ben’s work is already done. In his very first substantive post as a civilian he gave away all the secrets of the monetary temple. The Bernank actually refuted the case for modern central banking in one blog. In fact, he did it in one paragraph. This one. A similarly confused criticism often heard is that the Fed is somehow distorting financial markets and investment decisions by keeping interest rates ‘artificially low.’ Contrary to what sometimes seems to be alleged, the Fed cannot somehow withdraw and leave interest rates to be determined by ‘the markets.’ The Fed’s actions determine the money supply and thus short-term interest rates; it has no choice but to set the short-term interest rate somewhere. Not true, Ben. Why not ask the author of the 1913 Federal Reserve Act and legendary financial statesman of the first third of the 20th century – – Carter Glass. The then Chairman of the House Banking and Currency Committee did not refer to the new reserve system as a ‘banker’s bank’ because he was old-fashioned or unschooled in finance. The term evoked the essence of the Fed’s original mission. Namely, to passively rediscount good commercial collateral (receivables and inventory loans) brought to its window by member banks – priced at a penalty spread floating above the market rate of interest. Notwithstanding Bernanke’s spurious claim that the Fed has to ‘set the short-term rate somewhere’, the reserve system designed by Congressman Glass was authorized to do no such thing. It had no target for the Federal funds rate; no remit to engage in open market buying and selling of securities; and, indeed, no authority to own or discount government bonds and bills at all.
The following was kindly contributed by Paul from Maine…….. I’ve been fiddling with some numbers in Excel and thought you’d find it interesting. It concerns the correlation of NYSE margin debt with the S&P 500. Margin gives investors and traders the opportunity to borrow money in order to enhance their returns. NYSE margin debt concerns the aggregate value borrowed by all participants utilizing that particular exchange. The figures shown will be in millions, so $400,000 is $400 billion; big moolah. I became interested in margin debt after I had seen the following chart plastered on a few trading websites. Many of you may have seen it as well.
While the correlation is strong most of the time, the 2000 and 2007 tops stood out to me. Margin debt seemed to reach a peak, sell off hard, and then go nowhere as the S&Ps continued to make new closing highs. Not being satisfied with just a chart, I collected data as far back as 1996 and threw it into a spreadsheet. NYSE margin debt data: (buuuut it’s easier to Google search ‘NYSE margin debt’) SPX close data provided by Yahoo! Finance (other sources are available). First off, lets see how the correlation held during bull markets:
Last July, six Philadelphia armed thugs police officers who served in the narcotics squad were arrested on charges – including conspiracy, robbery, extortion, kidnapping, and drug dealing – for a six-year racketeering scheme during which the group netted $500,000 in drugs, cash, and personal property. The six were taken into custody by the FBI on July 30, 2014 after a two-year joint investigation by the FBI, federal prosecutors, and the Philadelphia Police internal affairs unit, said US Attorney Zane David Memeger. The 42-page indictment is filled with allegations of misconduct that would make the Mafia proud. Drug suspect Michael Cascioli says he was dragged inside his City Avenue apartment in November 2007 and beaten by the officers until he directed them to another man’s money and drugs. Cascioli said he was confronted by the officers in the hallway of his apartment building:
I am an admirer of Dahr Jamail’s reporting. In this article, Oceans In Crisis, Jamail tells us that we are losing the oceans. He reports on the human destruction of the oceans. It is a real destruction with far-reaching consequences. That fact is indisputable. From my perspective the human destruction of the oceans is yet more evidence of the ruinous nature of private capitalism. In capitalism there is no thought for the future of the planet and humanity, only for short-term profits and bonuses. Consequently, social costs are ignored. Capitalism can work if social or external costs can be included in the costs of production. However, the powerful corporations are able to block a socially functioning capitalism with their political campaign contributions. Consequently, capitalists themselves make the capitalist system dysfunctional. We may have reached the point where the external costs of production are larger than the value of capitalist output. Economist Herman Daly makes a convincing case that this is the fact. While the powerful capitalists use the environment for themselves as a cost-free dumping ground, the accumulating costs threaten everyone’s life. It appears that nothing can be done, because the oceans are ‘common property.’ No one owns them, so no one can protect them and their contents.
If you need evidence that we are in the midst of a lunatic financial mania, just consider this summary from a Marketwatch commentator as to why markets are ripping higher this morning: ‘The dovish comments from both Fed Chairwoman Janet Yellen and People’s Bank of China Governor Zhou Xiaochuan are giving markets a big lift, and in the absence of negative data or news, I imagine this will continue to buoy the markets throughout the session,’ Erlam said in emailed comments. Yellen said gradual hikes are likely this year, but that the central bank will move cautiously……. the PBOC governor said he saw ‘more room’ for China to ease policy if the economy stays soft and inflation continues to weaken. Its just that frightfully simple. If any of the major central banks anywhere on the planet ease or even hint they might, the robo machines and day traders unleash an avalanche of buy orders and the stock averages jerk higher. Indeed, Zero Hedge captured the motion succinctly this AM. In keeping with Bernanke’s inaugural blog revelation that 98% of monetary policy consists of ‘open mouth’ operations, the markets leapt upwards on cue. That is, if central banker jaws are flapping, then buy!
This is one of those sad times when The Onion realizes it has badly, and permanently, missed its IPO window. Just released from the Department of Justice Former Federal Agents Charged With Bitcoin Money Laundering and Wire Fraud Agents Were Part of Baltimore’s Silk Road Task Force Two former federal agents have been charged with wire fraud, money laundering and related offenses for stealing digital currency during their investigation of the Silk Road, an underground black market that allowed users to conduct illegal transactions over the Internet. The charges are contained in a federal criminal complaint issued on March 25, 2015, in the Northern District of California and unsealed today. Assistant Attorney General Leslie R. Caldwell of the Justice Department’s Criminal Division, U. S. Attorney Melinda Haag of the Northern District of California, Special Agent in Charge David J. Johnson of the FBI’s San Francisco Division, Special Agent in Charge Jos M. Martinez of the Internal Revenue Service-Criminal Investigation’s (IRS-CI) San Francisco Division, Special Agent in Charge Michael P. Tompkins of the Justice Department’s Office of the Inspector General Washington Field Office and Special Agent in Charge Lori Hazenstab of the Department of Homeland Security’s Office of the Inspector General in Washington D. C. made the announcement. Carl M. Force, 46, of Baltimore, was a Special Agent with the Drug Enforcement Administration (DEA), and Shaun W. Bridges, 32, of Laurel, Maryland, was a Special Agent with the U. S. Secret Service (USSS). Both were assigned to the Baltimore Silk Road Task Force, which investigated illegal activity in the Silk Road marketplace. Force served as an undercover agent and was tasked with establishing communications with a target of the investigation, Ross Ulbricht, aka ‘Dread Pirate Roberts.’ Force is charged with wire fraud, theft of government property, money laundering and conflict of interest. Bridges is charged with wire fraud and money laundering.
This post was published at Zero Hedge on 03/30/2015.
It’s tough to keep up with the conspiracy theories that run rampant from day to day in the hallowed halls of Congress. But one that is gaining traction is that the U. S. Treasury Department’s Financial Stability Oversight Council (whose acronym is pronounced F-SOC) is the handmaiden of an international finance cabal and is obediently marching to its beat instead of the mandates of Congress. These suspicions were on display at the Senate Banking Committee hearing last Wednesday and the House Financial Services Committee hearing the week before where U. S. Treasury Secretary Jack Lew, who Chairs F-SOC, was pummeled with thinly veiled, and not so thinly veiled, accusations. F-SOC was created under the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. It is charged with the early identification of emerging risks to the financial system. Every major regulator of Wall Street banks has a seat.
Authored by Mark St. Cyr, This past Friday saw what many like myself can only describe as a blatant example of just what’s wrong with both the economy – as well as the markets. At precisely 15 minutes before the closing bell on Wall Street the now Chair of the Federal Reserve, Janet Yellen gave a press conference detailing further insights into upcoming monetary policy. I guess two days worth of FOMC discussions, along with a press conference detailing all that was discussed immediately after, followed by a question and answer session about all those ‘insights and decisions’ wasn’t enough. For the markets remained red for the week while losing all its post FOMC pop which in itself is an ominous sign. At first blush some might contend, ‘Well, that’s a good thing they decided to communicate even more. Best to have any and all the information available as soon as possible. After all: more information is always better for the markets – no?’ Yes it is, however, when it exposes just how cozy (as well as frightened) monetary policy setting has moved from the appearance of setting beneficial policies that help ensure a free and open capitalistic system – to one hell-bent on serving a newer more dominant form of crony styled capitalism rampant within our markets. Where winners and losers are decided solely on their ability to manipulate their bottom line earnings ‘beat’ via access to resources made possible only via the Fed.’s current zero bound stance. (i.e., ZIRP) I don’t believe that was their original intent. If you were one of the few (i.e., not one of the Wall Street ‘In crowd’) that watched and listened to that presser on Friday. You were left dumbfounded on just how illogical, as well as contradictory nearly every example given was as to what one should now infer about what the Fed. is going to do next – and when.
This post was published at Zero Hedge on 03/29/2015.
‘Pay-to-Play’ politics awards government contracts to big campaign donors. The examples are astounding: Six hundred city vendors gave Mayor Rahm Emanuel $7 million in campaign cash over the past four years, and received over $2 billion in city payments since 2002. Clearly, the corrupt Daley political machine continues. Legalized money-laundering schemes continue to fill Emanuel’s campaign coffers despite his pledge to end insider influence. Emanuel is not the problem. Collectivism is. As long as the city holds vast political power and wealth, it will be a magnet for crooks and con artists – forever.
The most important number in today’s GDP revisions for Q4 was $16.20 trillion. That’s the annualized constant dollar (2009 $) value of final sales during the quarter and, naturally, it was not mentioned in any of the media reports. But its important because the final sales figures strains out the noise of quarterly inventory fluctuations, and thereby provides a reasonable benchmark for where the overall economy currently stands. In that context, the second most important number was $14.97 trillion – the real final sales number recorded for Q4 2007 on the eve of the Great Recession. As a matter of calculation, the rate of change between those two points over the last seven years is 1.1% per annum, and it embodies the tale of how main street is lagging while Wall Street is booming. The starting point for appreciating that proposition, therefore, is to recognize that there is no point whatsoever in comparing the Q4 figure with the prior quarter – – or even with the cumulative gain since the bottom of the recession back in June 2009. Those kinds of comparisons are the gist of the Keynesian narrative that both Wall Street and Washington assiduously peddle – -but they are designed to rationalize the status quo, not to elucidate the real condition of our national economy. As to the standard quarter/quarter comparisons, they are just plain irrelevant and more often than not misleading. The quarterly GDP data is seasonal maladjusted, full of short-term quirks and subject to so-called benchmark revisions in the future that can wash out today’s apparent Q/Q incremental changes entirely.
The Sunlight is Fading … and America Is Falling Into Darkness US Supreme Court Justice Brandeis said: Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman. But there’s no longer much sunlight to disinfect the corruption of the government or the powers-that-be. More and more commonly, the government prosecutes cases based upon ‘secret evidence’ that they don’t show to the defendant…or sometimes even the judge hearing the case. As just one example, government is ‘laundering’ information gained through mass surveillance through other agencies, with an agreement that the agencies will ‘recreate’ the evidence in a ‘parallel construction’…so the original source of the evidence is kept secret from the defendant, defense attorneys and the judge. A former top NSA official says that this is the opposite of following the Fourth Amendment, but is a ‘totalitarian process’ which shows that we’re in a ‘police state’. The government uses ‘secret evidence’ to spy on Americans, prosecute leaking or terrorism charges (even against U. S. soldiers) and even assassinate people. And see this and this. Secret witnesses are being used in some cases. And sometimes lawyers are being prevented from reading their own briefs. Indeed, even the laws themselves are now starting to be kept secret. And it’s about to get a lot worse. American citizens are also being detained in Guantanamo-like conditions in Chicago…including being held in secret, with the government refusing to tell a suspect’s lawyer whether his client is being held. And see this, this and this. The Department of Defense has also made it a secret – even from Congress – as to the identity of the main enemies of the United States. Today, Glenn Greenwald adds yet another twist to the trend towards secrecy:
You have not forgotten about Monsanto and their unhealthy GMOs, have you? Too often, it is out of sight, out of mind. Companies and puppet governments, like the US, count on mass forgetfulness. Here is one Monsanto stooge advocating the good of Monsanto’s use of chemicals in the food system, particularly glyphosate, the active ingredient ‘not increasing the rate of cancer in Argentina.’ Freud would call that confirmation by denial, but if you refuse to accept that premise, is it not curious that ‘glyphosate’ and ‘cancer’ are found in the same sentence? This lobbyist proclaims, ‘I am not stupid,’ when offered to drink a glass of the allegedly harmless glyphosate. Anyone else choosing to consume it, however, must fall in the ranks of stupidity. Keep buying those Monsanto GMOs at your grocery store. It is unlikely you will find any GMO labeling because Monsanto believes its products are so good, they keep it hidden. Monsanto has the same motto as Obama, when assuring the public about the use of NSA spying on the world, ‘Trust us.’ You betcha!
Extrait : Bientt dans vos assiettes… – Interview de Patrick Moore “Do as I say, not as I do,” appears to be the message from a controversial lobbyist who claimed that the chemical in Monsanto’s Roundup weed killer was safe for humans refused to drink his own words when a French television journalist offered him a glass… “I’m not stupid,” he proclaims… you be the judge… In a preview of an upcoming documentary on French TV, Dr. Patrick Moore tells a Canal interviewer that glyphosate, the active ingredient in Roundup herbicide, was not increasing the rate of cancer in Argentina.
This post was published at Zero Hedge on 03/27/2015.
They were trying to put in a bottom – – again! The sell-off earlier this week amounted to the sixth sizeable ‘dip’ since November 20 – -so the market’s ingrained reflex was back at work all afternoon, trying to scoop up the ‘bargains’. But the roundtrip to the flat-line shown below is not a classic ‘wall of worry’ and its not a ‘bottom’ that’s being put in. This market is dumber than a mule, and the nation’s central bank and its counterparts around the world have made it so. The plain truth is that six years of torrential money printing and worldwide ZIRP have not happened with impunity. On the one hand, massive, sustained and universal financial repression caused an artificial growth and investment boom in much of the world, especially China and the EM, which has now run out of steam and is visibly and rapidly cooling.
Kraft shareholders woke up $12 billion richer this morning and for that they should thank their lucky stars – – or at least send a case of Cristal to Janet and her merry band of money printers. Having passed-out free money to carry traders for 75 months running and after inserting a liquidity and verbal ‘put’ under every market dip since March 2009, the money printers had generated downright giddiness (as of Tuesday night!) in the Wall Street casino. And when it came to the shares of Kraft, the casino was indeed giddy even before the deal was announced. A few months ago when it was trading about $55/share, the company was already valued at 31X its $1.75 per share of net income for the year then ending. So now those fast money traders who somehow ‘got wind’ of the deal early are just plain tickled pink. At $83 per share they are up 50% on their cash position and several hundred percent on their call options. That’s quite the pay day, amounting to about 47X last year’s earnings on Jell-O, Kool-Aid, Lunchables, Maxwell House, Oscar Mayer, Philadelphia cream cheese, Planters peanuts and Velveeta spreads. Setting aside the Kool-Aid, you might wonder how hot dogs, peanuts and sliced cheese are really worth such a snappy valuation multiple. Actually, however, that’s not the complete wonder of it. In the year just ended, Kraft posted an hardly impressive $2.9 billion of adjusted EBITDA less CapEx. Yet the casino is now pegging its total enterprise value (TEV) at $58 billion – -including about $9 billion of net debt. Can you say 20X free cash flow? Well, Warren Buffet can. Gushing away in a statement accompanying the deal, the Oracle of Omaha said:
NEW YORK (MarketWatch) – Wall Street can’t say it hasn’t been warned. The Office of Financial Research, the agency tasked with promoting financial stability and keeping an eye on markets, released a paper last week stating that the stock market is dangerously overpriced, and that excessive leverage will exacerbate the next market correction. The paper is aptly titled ‘Quicksilver Markets’ alluding to when prices deflate, it will happen swiftly and not without pain. ‘The timing of market shocks is difficult, if not impossible, to identify in advance, let alone quantify – a shock, by definition, is unexpected,’ wrote Ted Berg, an analyst at OFR. But Berg identified several indicators that are pointing to a correction. Instead of looking at valuation in isolation, Berg and his team analyzed other factors, such as corporate profits and leverage, and found a disturbing picture. He argued that forward price-to-earnings ratios are not very good predictors of market downturns, as they tend to be biased during boom times, but other metrics, such as the so-called CAPE ratio, Q-ratio and Buffett indicator all offer warning signs. Just to provide a little context for the less technically minded market watchers, the CAPE ratio is the ratio of the S&P 500 index to trailing 10-year average earnings. Q-ratio is the market value of nonfinancial corporate equities outstanding divided by net worth, while the Buffett Indicator describes the ratio of corporate-market value to gross national product. All three of those metrics are approaching two standard deviations above historical means, while forward P/E ratios are within historical norms.
There really isn’t much to say about the housing market in the US right now except that economists clearly don’t know what to do with it. Having signed up wholeheartedly for the ‘booming’ economy, or at least the narrative thereof, flagging sales in both new homes and resales doesn’t compute. Instead of recognizing why that may be, especially as it relates to the clear, obvious and unambiguous monetary influence in it all, the best they can come up with is something like this: Lawrence Yun, NAR chief economist, says although February sales showed modest improvement, there’s been some stagnation in the market in recent months. ‘Insufficient supply appears to be hampering prospective buyers in several areas of the country and is hiking prices to near unsuitable levels,’ he said. ‘Stronger price growth is a boon for homeowners looking to build additional equity, but it continues to be an obstacle for current buyers looking to close before rates rise.’ I’m at a total loss to understand what that statement actually means in anything like a real economic circumstance. According to basic supply and demand, ‘strong price growth’ should not in any way be a constraint upon supply of houses for sale; quite the opposite. Mr. Yun takes this to an extreme whereby he actually supposes that lack of supply is restraining buyers! Again, there is no way that makes any sense whatsoever. The only way that rising prices would lead to restrained supply is if potential sellers realize they can no longer sell at those rising prices. In that sense, rising prices aren’t really rising prices indicative of a healthy market but rather, unsurprisingly, unsustainable bubble mechanics. Further, it isn’t, then, supply that is restraining but demand for resales. The economy isn’t booming at all except for a small section most adorned by asset inflation that is skewing pretty much any economic account and factor.
Yesterday we demonstrated that stock market valuations are not merely ‘on the high side’ as Janet Yellen averred last week. Instead, they are positively in the nose-bleed section of history. You don’t get the Russell 2000 trading at 90X honest-to-goodness GAAP earnings or 125 biotechs with aggregate LTM losses of $10 billion sporting a combined market cap of $280 billion unless you are deep into bubble land. In fact, the chart on the median PE multiple for all NYSE stocks bears repeating. Recall this graph is based on trailing GAAP earnings for all companies with positive income. But that was for the LTM period ending in June 2014. Since then the market is up by 7%, yet reported earnings have basically flat-lined. S&P 500 earnings for the June 2014 LTM period, for example, were $103 per share – – -a level that has now dropped to $102 per share for the December LTM period. In short, the median NYSE valuation multiple is now at upwards of 22X – a level far above even the dotcom and housing bubble peaks. It is no wonder, therefore, that even a certified Cool-Aid drinker like St Louis Fed head, James Bullard, has now confessed that he fears a ‘violent’ Wall Street sell-off when the Fed finally ends an 80 month streak of ZIRP sometime this fall.