Thursday, April 17, 2014

La Cina, i suoi economici guai, il suo sistema bancario fantasma. Come sue certe spose

by Edoardo Varini

Il portavoce dell'Istat cinese si chiama Sheng Laiyun, e non ricorderà la giornata di ieri tra le sue migliori. Perché gli è toccato di dire al mondo che il Pil cinese è giunto ai minimi da 18 mesi a questa parte: 7,4%.

Ed anche altri dati non sono felici: -6,6% nelle esportazioni, -11,3 nelle importazioni, indice PMI a 48,3, sotto la soglia critica di 50, il che significa che i direttori degli acquisti – coloro che fanno gli investimenti per le aziende – non la vedono bene. E poi questa storia della liquidità che cala, del crollo dei nuovi prestiti.

Poco più di un mese fa abbiamo avuto il primo fallimento di un corporate bond cinese, emesso da Chaori Solar Energy Science & Technology: i 14,7 milioni di dollari che servivano per onorare gli interessi non si sono trovati.

La compagnia di navigazione Nanjing Tanker sarà cancellata dalla borsa di Shangai. Mai era accaduto ad una società sostenuta dal governo centrale, che però ora deve fare pur esso i suoi conti. Dunque il delisting, per 2 miliardi di dollari di debito: oltre quattro volte il patrimonio netto.

Se qualcuno un lustro fa fosse venuto a dire che il livello di crescita cinese non era sostenibile gli avrebbero riso in faccia. Ora si è tutti appoggiati al parapetto ad attendere il riassetto, dolorosissimo, che condurrà l'economia del dragone dalla sovpproduzione e dalla completa noncuranza verso la sostenibilità ambientale alla sostenibilità, in tutti i sensi.

alt è un rivenditore online di cosmetici. Un colosso cinese. Uno dei tanti, con sede a Pechino. Lo scorso anno ha fatturato 1 miliardo di dollari. Debutterà in borsa entro fine anno ma non a Shangai, a Wall Street.

Le esportazioni cinesi, l'abbiamo visto, sono in calo. La crescita si dovrà dunque puntellare alla domanda interna. Chi la finanzia? Chi l'ha finanziata fino ad oggi? La Banca centrale, certo. Ma per la più parte il cosiddetto "shadow banking", che vuol dire "sistema bancario ombra", o "collaterale".

Questo sistema ora concede prestiti chiedendo a garanzia materie prime. Ferro e rame stanno arrivando a fiumi in Cina, come mai prima. Con lettere di credito. Se però cala il prezzo dei metalli ti viene chiesto di rientrare. A quel punto ci devi riuscire. E non è per niente facile. Però qui siamo in Cina, dove se vuoi puoi sposare anche un fantasma. La cerimonia la chiamano minghun. In fondo "shadow" puoi tradurlo anche "spettro".

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Google testing dual support…that NEEDS to hold!

by Chris Kimble


Google has created a quality rising channel and it broke above this channel last year and now is about to test it as support. As the same time a steep support line is coming into play, creating dual support.

Support is support until broken.

If support should not hold here, it would send a heck of a message to the tech sector! Stay tuned here!!!

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Crude market still worried about Ukraine

By Phil Flynn

Oil Cure!

A surge in U.S. oil (NYMEX:CLK14) supply brought a sense of calm to the oil risk premium but based upon spreads the market is still worried about Ukraine. High-level talks are taking place in Geneva to try to find a peaceful resolution to the crisis. While Russian President Vladimir Putin speaks with inflammatory rhetoric there were some reported deaths of Russian separatists. Dow Jones reported "Russian President Vladimir Putin on Thursday accused the Kiev government of committing "a serious crime" by sending in troops to quell unrest in Ukraine's east, as a clash overnight left three pro-Russian protesters dead and 13 wounded. Ukraine has accused Russia of sending agents into the region to foment unrest, but Mr. Putin insisted that Russia has no forces present in the country." The stakes are high and the weekend will be long so it will be interesting to gage how the market will price the risk when it knows that whatever they decide will be locked in until trading once again begins.

In a normal day the story would have been about the Energy Information Administration supply report and the fact that U.S. oil production hit the highest level since the 1980's. A 10 million barrel plus build the largest since 2001 caused the West Texas intermediate to back off and even brought down the Brent crude yet the risk spreads still widened. The Brent crude stayed stronger despite hopes for a return of Libyan oil back to the market.

The impact of U.S. oil producing over 8.3 million, the most since April 1988 was clear and is raising  the question how refiners can take better advantage of this high yielding pure crude oil. Refiners ran at an impressive 88.8 percent which was up 1.3 percentage points from the last week and the highest level since January. Yet despite that effort a distillate inventory fell 1.28 million barrels to 111.9 million last week and gasoline stockpiles dropped 154,000 barrels to 210.3 million. Demand has been strong. Diesel demand should start too sure as farmers look to get in the field assuming the weather starts to warm and dry up. Gas demand while dropping last week has been strong on the four week average.

Ethanol production also came roaring back rising 43,000 barrels per day hitting 93,000 barrels the highest weekly grind since early December. Soybeans (NYBOT:JSK14) also hit a 10 month high still riding the near record soybean-crush.

Natural Gas will take the Stage as the EIA reports its weekly supply report. The market is looking for an injection that should come in around 33. We need to see a sign that producers are ramping up production in a big way or nerves will start to set in. Look to buy calls!

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Even The US Government Will Abandon the U.S. Dollar

By: Jeff_Berwick

For millions it is already too late.

They won't realize the geopolitical winds which are now blowing.  Off in their own lala land, the average American will be focused on sports, celebrities, what the right amount of stealing (taxes) in society is, gay rights, which foreign countries "we" should bomb next, the first woman president, and so on and so forth, while their livelihoods are sacrificed in the name of the US government.

They will wake up one morning, and their prospects will be gloomier than they are now. Don't think such a thing happens? This exact thing just happened in the Ukraine. Devastation. People wake up one morning and all the sudden everything they had worked so hard for is gone. "Oh, but that's Ukraine!" you might say. "Not here in the US."

Well, when you realize that a lot of the policies now being instituted in Ukraine were supported by the US government and the International Monetary Fund, which is largely funded by the US government, then maybe, just maybe you will start to see things differently. If not, I understand. Public schools are not kind institutions to reason. If that's not reason enough just consider the growing police state.

Jim Rogers recently discussed with Yahoo! Finance how all western governments are bankrupt, which we cover regularly, stating "There is no sound currency anymore...There's no paper money in 2014 and 2015 that's going to be worth much of anything."

Bloomberg recently reported that the US dollar reached a two-year low, it's weakest level since November 2011. Furthermore, the US dollar has lost 38.5% of its value since 2002.  Rogers predicted the US will soon abandon the dollar for another currency!

"For the first time in recorded history we have all major banks and central governments around the world printing huge amounts of money," Rogers said. "This has never happened in world history and so the world is floating on an artificial ocean... of lots and lots of printed money," said Rogers.

"The debt is going higher and higher. The money printing is going higher and higher.  We've had 50 or 60 years of success in America," he said. "You've got to pay the price someday whether you like it or not. The longer you delay the day of reckoning, the worse the day of reckoning is going to be.  This is not going to be fun."


"Abolish the Federal Reserve," Rogers stated. "The world has gotten along quite famously and well without central banks for most of world history."

"America has had three central banks in our history, the first two disappeared," he said. "This one's going to disappear too because they keep taking on huge amounts of debt... they keep leveraging up the balance sheet... they keep making mistake after mistake... they're printing money, it's going to self-destruct before it's over...We'd be better off with no central bank than this central bank."


It's no wonder why the IRS, Social Security and Treasury are going after hardworking ordinary Americans. The government is flat out broke! They must simply get their hands on as much cash as possible, as quickly as possible, to delay the inevitable - US dollar abandonment and inevitable collapse.

We reported last week how the Bureau of Land Management invaded Nevada in order to ready the land to be passed onto the Chinese. As you see, the US government is in so much debt, it is selling off parcels of land to creditors. But before it does that, it will have to go to war with the American people... Many government officials have confirmed the standoff there is not over and Ron Paul has warned against a WACO style siege.

Then, just yesterday, we reported how Social Security and Treasury are stealing tax refunds to satisfy decade old debts...oftentimes parents' debts. (it turns out this recently was ceased until further investigation, a testament to how getting the word out can change things for the better)

The feds are so desperate they are pondering taxing employee perks like free food at lavish cafeterias, laundry and even yoga.

We here at The Dollar Vigilante know this information can be overwhelming. The sad thing is, we are not being hyperbolic. We cannot underscore in a daily blog the severity of the situation in which we find ourselves.


Something big is going on behind the scenes. Bankers are committing suicide or being murdered, and the finance minister of Canada just died. We are turning a corner and all of the debts and money printing is going to have a massive effect possibly as soon as this year, as Jim Rogers notes.  Precious metals have been in a consolidation period for years now, and TDV anticipated this and told our premium readers to go long cash, but now I personally am turning hyperbullish on precious metals, precious metals stocks and aggressive on shorting the overall stock market and I will write more about this in the April issue of TDV.  (For more information on our subscriber area,  click here.)

Capital controls have been ratcheted up across the entire world. We've been covering the slow progression here, and with Foreign Account Tax Compliance Act coming into full effect July 1st, 2014, we believe we are in the final months when Americans can easily get their money outside of the US. If you have assets in the US, you're on the precipice of being too late! You should be running, not walking, to the lifeboats. Remember, even the US government will be forced to abandon the dollar. 

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Russia's Ukraine Arsenal Includes U.S. Bonds

By Mark Gilbert

Figures this week showing that Russia has cut its Treasuries holdings to the lowest level since 2011 are a reminder that U.S. finances depend on the kindness of strangers.

The U.S. government owes its foreign creditors $5.885 trillion, or roughly a third of the country's total public debt. The U.S. is now twice as reliant on foreign money as it was six years ago.

Uncle Sam's overseas obligations have crept inexorably higher, as other nations have mopped up Treasury bonds for their foreign-exchange reserves. A 28 percent increase in 2008 was followed by 20 percent in 2009, another 20 percent in 2010, a relatively modest 13 percent in 2011, another deceleration to 11.3 percent in 2012, and a positively parsimonious 3 percent last year.

Russia reduced its U.S. government bond investments to $126.2 billion in February, down from $131.8 billion the previous month and from almost $150 billion as recently as October, according to data from the U.S. Treasury department.

It isn't likely that Russia has been dumping debt in retaliation against the sanctions imposed by the U.S. in response to President Vladimir Putin's annexation of Crimea. There is a chance, however, that Moscow is dipping into its savings to help fund its adventures in Ukraine; Russia just had its eighth bond-sale cancellation this year as investors shun its auction attempts.

These days, geopolitical conflicts aren't just fought on battlefields, or indeed in cyberspace. As both Russia and Ukraine are finding, the currency and interest-rate markets offer new fronts on which wars can be fought.

Which is why the magnitude of the U.S. reliance on foreign governments for funding should give pause. A relatively paltry $126 billion wouldn't give Russia much clout in the Treasury market even if it wanted to use it to retaliate against U.S. sanctions.

Imagine, though, what might happen in the event of a confrontation between the U.S. and China. The $1.3 trillion of Treasuries in Beijing's back pocket might rapidly start to look like more like a weapon than an investment.

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‘Too big to fail’ is still a threat

by Martin Wolf

Opinion: the problem is not only the subsidy for bank risk-taking, it is also the likelihood of disasters

“The total assets of a number of big banks have continued to soar: institutions with assets of $2 trillion are common. Such banks remain highly interconnected, though the extent of this might have diminished recently.” Photograph: Andy Sacks/Getty Images

“The total assets of a number of big banks have continued to soar: institutions with assets of $2 trillion are common. Such banks remain highly interconnected, though the extent of this might have diminished recently.” Photograph: Andy Sacks/Getty Images

No solvent government will allow its banking industry to collapse. Leveraged institutions whose liabilities are more liquid than their assets are vulnerable to panics. In a panic, it will be hard to distinguish illiquidity from insolvency. These three points shape my views: the state stands behind banking even though it might not stand behind individual institutions.

One of the obstacles to making the bearing of losses by creditors credible is “too big to fail” – the challenge posed by banks that are individually systemic.

A question about post-crisis regulation is whether this risk is gone. The answer is no. Mark Carney, the governor of the Bank of England and chairman of the Financial Stability Board, agrees that “firms and markets are beginning to adjust to authorities’ determination to end too-big-to-fail. However, the problem is not yet solved.”

No it is not, as a chapter on banks in the latest Global Financial Stability Report from the International Monetary Fund shows. “Subsidies rose across the board during the crisis but have since declined in most countries,” it concludes. “Estimated subsidies remain more elevated in the euro area than in the US. . . All in all, however, the expected probability that systemically important banks [SIBS]will be bailed out remains high in all regions.” Moreover, in another crisis, the necessary subsidies might jump once again.

One reason is that the banking sector has tended to become even more concentrated. Furthermore, the total assets of a number of big banks have continued to soar: institutions with assets of $2 trillion are common. Such banks remain highly interconnected, though the extent of this might have diminished recently.

Another reason is that the subsidies are still large. The IMF notes there are three different ways of assessing the subsidy. The first is from the difference between the interest rates on bonds issued by SIBs and non-SIBs. The second is a “contingent claims analysis”. The third comes from the analysis by rating agencies of the gap between the standalone rating and one allowing for state support.

Comparisons between interest rates on bonds paid by SIBs and non-SIBs are quite tricky. Nevertheless, the contrast between US institutions with comparable leverage ratios (ratios of total assets to equity) reveals that the SIBs have a funding advantage. This confirms that the subsidy does indeed endure.

The second approach is based on comparing observed spreads on credit-default swaps (a form of insurance on bonds) with fair-value spreads derived from prices of equities. The CDS spreads – unlike data from equities, whose owners are unlikely to be protected – take account of the probability of distress and the likelihood and size of government support. This method shows huge support during the crisis, which then declines in the US and rises in the UK and euro zone.

The third approach is taken directly from estimates by rating agencies. This too shows that the subsidies are large, though slightly declining after the crisis.

Reforms introduced after the crisis aimed at reducing the likelihood of state support seem to have increased the perceived riskiness of SIBs, just as the imposition of lower leverage ratios reduced it. Both outcomes were desirable. Yet the implied subsidies remain large – as high as $312 billion in the euro zone, on one approach. In terms of the funding cost advantage to SIBs the subsidies are at least 15 basis points in the US; 25-60 basis points in Japan; 20-60 basis points in the UK; and 60-90 basis points in the euro zone.

It is hard to conceive of a good argument for subsidising these banks against smaller competitors. The only plausible argument is that banking systems dominated by a few large institutions might be more stable than competitive ones. This is not ridiculous: a well-organised cartel might be more stable than a large number of small competing banks. Yet if so this would clearly come at the expense of customers and the economy. It would be far better – and feasible – to take another route.

So what is to be done? The IMF suggests three options: restrict the size and activities of banks; reduce the probability of distress; and lower the probability and size of any bailout if a bank becomes distressed. Of these, the second is best.

While ringfencing of retail activities makes good sense, governments should not decide what private businesses do. On the third, commitments to limit the probability and scale of a bailout in the event of a systemic crisis are usually not credible. Given this, the best policy is the second: reducing the likelihood of a crisis. That can be best achieved by raising capital requirements and ensuring maximum transparency of balance sheets. This is even more vital if the aim is to safeguard the economy and the solvency of governments.

Unfortunately, despite efforts in that direction, bank leverage remains too high. The US has now proposed a (non-risk-weighted) equity ratio of 5 per cent for large bank holding companies. But it is too easy for a bank’s assets to lose 5 per cent of their value. Funding by equity should be at least 10 per cent of the balance sheet and ideally more. At the very least, as the IMF suggests, equity should be raised until all measures of the subsidy are zero.

Yet it is always the system, stupid. It would be quite wrong to suppose the chief problem is individual banks that are too important to fail. – (Copyright The Financial Times Limited 2014)

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ECB moving closer to unconventional policy


The ECB received another set of disappointing inflation reports today. For some time now the central bank has been betting on the fact the declining inflation figures were driven by food and energy, while the core CPI rate was recovering. Well, that didn't turn out to be the case, at least for now.

Eurozone core CPI (source:

With the euro remaining at lofty levels, the ECB is beginning to prepare the markets for new monetary stimulus, as the various officials discuss "unconventional" policy.

BW: - After building a reputation as a nay-sayer on the European Central Bank’s Governing Council, the Bundesbank president’s [Jens Weidmann's] support for large-scale asset purchases marks a shift that helps the fight against deflationary threats. His tentative backing of quantitative easing will shore up its credibility as officials debate whether they need to implement it.
WSJ: - "Should further monetary accommodation be needed, it is reasonable to consider other operations aimed at lowering the term premium. This is where targeted asset purchases enter the toolset of monetary policy," Mr. [Benoit] Coeure said in prepared remarks to an International Monetary Fund conference.
WSJ: - Mr. [Ewald] Nowotny, who is a member of the ECB’s governing council, signaled that his preference would be for any ECB stimulus to be geared toward Europe’s asset-backed securities market, which may in turn boost the flow of credit to the economy. He said he is open to setting a negative rate on bank deposits parked at the ECB, but raised doubts about the effectiveness of such a move.
“We are preparing all the technical aspects of a range of possible interventions,” Mr. Nowotny told The Wall Street Journal on the sidelines of meetings of the International Monetary Fund.
Of course there doesn't seem to be an agreement on the type of unconventional policy the central bank will undertake. Things like a negative deposit rate for example have been discussed. But if the decision is to buy assets, what types of assets would the central bank focus on? Some of the recent discussions centered around ABS securities and other types of bonds that would provide credit to smaller and medium-sized businesses. The problem with this strategy is the market size. Thanks in part to Basel capital rules, the ABS market in Europe isn't sufficiently large (Basel regulators have referred to these securities as "toxic"). And since only the higher rated paper qualifies for ECB collateral (which is presumably the only bonds that the central bank would be permitted to buy), there isn't enough to have a credible QE program.

Source: DB

It seems the ECB wants to stay away from simply buying sovereign debt, particularly of periphery governments (for obvious reasons). Buying only the core states' bonds on the other hand could be even more problematic. Moreover, lowering government bond yields is unlikely to stimulate private credit growth (after all it hasn't thus far). The central may also stay away from uncovered bank bonds for the same reasons it wants to avoid periphery sovereign paper. This leaves corporate paper - bonds and even direct loans to companies bought in the secondary market. Hard to imagine a central bank buying corporate paper, but it has been done in Japan, so why not in the Eurozone?
Deutsche Bank has compiled an excellent chart of the ECB's options based on the effectiveness of the purchases in stimulating growth (getting capital to where it is most needed) vs. the size of the QE program. The tricky part is that the more effective the monetary transmission, the riskier are the assets.

These are some difficult choices for the ECB and the central bank may want to wait longer to see if the inflation picture improves and/or the euro declines. It may however end up being a long wait.

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It's Time to Ditch the Consumer Price Index (CPI)

by Charles Hugh Smith

So why does the government maintain such a transparently inaccurate and misleading metric? For three reasons.

That the official rate of inflation doesn't reflect reality is obvious to anyone paying college tuition and healthcare out of pocket. The debate over the accuracy of the official consumer price index (CPI) and personal consumption expenditures (PCE--the so-called core rate of inflation) has raged for years, with no resolution in sight.
The CPI calculates inflation based on the prices of a basket of goods and services that are adjusted by hedonics, i.e. improvements that are not reflected in the price of the goods. Housing costs are largely calculated on equivalent rent, i.e. what homeowners reckon they would pay if they were renting their house.
The CPI attempts to measure the relative weight of each component:

Many argue that these weightings skew the CPI lower, as do hedonic adjustments. The motivation for this skew is transparent: since the government increases Social Security benefits and Federal employees' pay annually to keep up with inflation (the cost of living allowance or COLA), a low rate of inflation keeps these increases modest.
Over time, an artificially low CPI/COLA lowers government expenditures (and deficits, provided tax revenues rise at rates above official inflation).
Those claiming the weighting is accurate face a blizzard of legitimate questions. For example, if healthcare is 18% of the U.S. GDP, i.e. 18 cents of every dollar goes to healthcare, then how can a mere 7% wedge of the CPI devoted to healthcare be remotely accurate?
In my analysis, the debate over inflation is intrinsically flawed. What really matters is not the overall rate of inflation, which can be endlessly debated, but the purchasing power of earned income, i.e. wages and the exposure to real-world costs.
In other words, those households with zero exposure to college tuition and the full costs of daycare, medical care and healthcare insurance may well experience low inflation, while the household paying the full costs of daycare, college tuition and healthcare insurance will experience soaring inflation.
Here's one example of how CPI fails to capture real-world inflation/loss of purchasing power. Let's say an employee works for a company or agency that pays his/her healthcare insurance. The monthly cost has risen from $1,000/month to $1,500/month. The employee's wage has remained stagnant but the total compensation costs paid by the employer have gone up by $500/month.
Now the employer shifts that $500/month to the employee as their share of the healthcare insurance cost. Since the average full-time worker earns around $40,000 a year, and pays around 18% in taxes, their take-home pay is around $33,000 annually.
The employee's co-pay of $6,000 a year ($500/month) represents 18% of their take-home wage. This is an 18% reduction in earnings, or the equivalent of 18% inflation (i.e. a reduction in purchasing power).
This shifting of the skyrocketing burden of healthcare costs acts the same as 20% inflation, yet it doesn't even register in the current CPI.
The geography of inflation doesn't register, either. Soaring rents in Brooklyn, NY and the San Francisco Bay Area have a profound effect on those exposed to these rapidly rising costs, yet these impacts are massaged to zero by national CPI calculations.
So once again we have a bifurcated society: those protected by the state from rising costs and those exposed to real-world reductions in purchasing power.Households that receive government subsidies and direct payments have little exposure to real-world healthcare costs, since they are covered by Medicaid, and modest exposure to housing if they receive Section 8 benefits (Section 8 recipients pay 30% of their income for rent, regardless of the market price of the rental). Retirees on Medicare also have limited exposure to the real-world costs of their care paid by the government.
If we analyze inflation by these two metrics, we find the middle class is increasingly exposed to skyrocketing real-world prices. Pundits in the top 5% have the luxury of pontificating on the accuracy of the CPI while those protected by government subsidies and coverage have the luxury of wondering what all the fuss is about. Only those 100% exposed to the real costs experience the full fury of actual inflation.
So why does the government maintain such a transparently inaccurate and misleading metric? For three reasons: 1) it is useful propaganda; 2) it suppresses the state's cost-of-living increases and 3) it lowers the government's cost of borrowing. The benefits of reducing COLA adjustments are self-evident, as is the benefit of borrowing money at low rates of interest, but the propaganda benefits are more subtle.
The key to enabling the endless printing of money that enriches the banks and the top .1% is low inflation. Asset bubbles can be inflated, ballooning the wealth of the owners of the assets, as long as inflation is near-zero.
Indeed, the Federal Reserve claims it must print money to counter low inflation.
Meanwhile, in the real economy, those exposed to the real costs of college tuition, healthcare, childcare, etc. are seeing their purchasing power evaporate like a puddle of water in Death Valley. The Fed needs low inflation to justify its continuing enrichment of the financial elite, and the Federal government needs low inflation to keep its COLAs and borrowing costs low.
There are two ways to mask real-world reductions of purchasing power: 1) skew the CPI by distorting the component percentages, hedonics and how costs are measured, and 2) protect enough of the populace from real-world increases so they no longer care. Seniors, who famously vote in droves, have no idea what their Medicare benefits actually cost. As a result, they have no experience of healthcare inflation /reduction of purchasing power.
This works in all sorts of industries. As I have often mentioned here, the F-35 Lightning fighter aircraft costs in excess of $200 million each, roughly four times the cost of the F-18F it replaces. This extraordinary inflation is not experienced directly by the taxpayer who is paying for the boondoggle, as the Federal government borrows trillions of dollars to pay for such boondoggles, effectively passing the inflated costs on to future generations.
These costs are hidden by the low cost of borrowing trillions to pay for boondoggles. If real-world inflation is (say) 5%, then interest rates would typically adjust to a few points above that rate, to compensate capital for the erosion of purchasing power. If the Treasury had to pay 7% to borrow money, the interest cost would soon cripple Federal spending. People would be forced to focus on how all those trillions of dollars are being spent, and to whose benefit.
But with borrowing costs so low, nobody cares.
The solution? One, abolish the Fed and let the market discover interest rates, and two, abandon the simplistic notion that one number of inflation has any meaning in a complex economy with numerous subsets of exposure to market costs and the loss or gain of purchasing power.
Will we muster the will to look past failed models and metrics? Sadly, the answer is no. Why?
As I noted yesterday in What's the Difference Between Fascism, Communism and Crony-Capitalism? Nothing, a system set up to enrich political and financial elites is incapable of reform. the only way the CPI will ever be replaced is when the Status Quo collapses in a heap of lies and insolvency. Until then, propaganda and gaming the system to protect vested interests will rule.

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This Week in Petroleum: Activities spending on the rise

by U.S. Energy Information Administration 

Annual reports by oil and natural gas companies show that spending on exploration and development activities increased by 5% ($18 billion) in 2013, while spending on property acquisition continued to decline by $17 billion. Total upstream spending was relatively flat after a period of strong growth (averaging 11% per year) from 2000 to 2012.

In the past two years, flat oil prices and rising costs have contributed to declining cash flow for this group of companies. Continued declines in cash flow, particularly in the face of rising debt levels, could challenge future exploration and development. However, reduced spending levels could be offset by rising drilling and production efficiency.

EIA reviewed data from 42 recently released financial statements for public oil and natural gas companies. The reports, required by the U.S. Securities and Exchange Commission, show that the slight increase in spending was driven by expenditures to develop fields acquired in previous years. Expenditures to buy new property fell in 2013, and spending on production activities was flat.

Companies report expenditures related to oil and natural gas production activities in three categories: property acquisition, exploration and development, and production, collectively referred to as the upstream. Property acquisition includes costs incurred to purchase proved and unproved reserves. Exploration and development includes expenditures related to searching for and developingthe facilities and infrastructure to produce reserves. Production includes costs associated with extracting oil and natural gas from the ground once the field has been developed.

Composition of the 0.4% increase in upstream spending in 2013 included the following: exploration and development expenditures rose 5% ($18 billion) in 2013 (Figure 1), while production expenditures grew by just 0.6% ($1.4 billion) and acquisition expenditures decreased 33% ($17 billion). Acquisition expenditures can fluctuate, spiking when there are large mergers and acquisitions. After a large increase in 2010, driven by ExxonMobil's acquisition of XTO, an independent oil and gas producer, acquisition expenditures have declined steadily and in 2013 were the lowest since 2009.

Gasoline prices mostly up, diesel fuel prices down slightly
The U.S. average price for regular gasoline increased by six cents this week to $3.65 per gallon as of April 14, 2014, 11 cents higher than the same time last year. West Coast and Gulf Coast prices increased by 10 cents and 8 cents, to $3.98 and $3.47 per gallon respectively. The Midwest gasoline price rose by six cents to $3.63 per gallon, while the average gasoline price on the East Coast increased three cents to $3.61 per gallon. The Rocky Mountains saw the only price decline, by a penny to $3.44 per gallon.

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Corn Prices Fall from Favorable Planting Weather

By: Dustin Johnson

Wheat finished with double digit losses while old crop soybeans posted double digit gains. Favorable planting weather is forecasted for the Midwest which pushed new crop corn back below $5. Soybean strength was a continuation of yesterday’s bullish NOPA crush report. This latest crush number raised the pace well beyond previous estimates and suggests the need to import more or ration crush demand through higher prices. Wheat retraced some of yesterday’s gains but the price is still well above its major moving averages. After the grains closed it was reported that a group of pro-Russian separatists attacked a Ukrainian military base. Escalation of Ukrainian/Russian tensions has resulted in rising wheat prices so this may affect prices on the overnight open.

The EIA ethanol report released this morning showed production up 43,000 BBL per day while stocks were down 0.5 to 16 million BBL. This was a rather strong report but also not a surprising one given the strong margins. Even with strong weekly ethanol numbers final demand for ethanol is not likely to change anytime soon given the blending wall. Export and feed demand have been strong for this marketing year but we are still going to be left will between 1.3 and 1.5 billion bushels of corn carried into 2014-2015. With the potential for aggressive planting in the next few weeks we believe corn has more risk to the downside. The technicals are starting to roll over as well.

December 2014 Corn

December 2014 Corn

Tomorrow morning the USDA will release weekly export sales at 7:30am. Estimates are calling for -100k to +100k MTs of old crop beans, 175k to 350k MTs of new crop beans, 550k to 850k MTs of corn (old/new combined), 50k to 250k of old crop wheat and 225k – 375k of new crop wheat.

As a reminder markets will be closed on Friday in observance of the holiday and reopen for Sunday night trading.

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The Great Keynesian Fraud

by Bill Bonner

A Thousand Clowns

Economics has been called the “dismal science.” But even that is merely fraud and flattery. Economics is dismal, but it isn’t science. At best it is merely voyeurism – peeping in people’s windows as they go about their business and trying to figure out what they are doing. At worst, it is pompous theorizing about how to get the schmucks to do better.

We doubt that you are especially interested in economics, dear reader. We know we are not. But we can’t resist a good comedy … or a good opportunity to point and giggle. We keep our eye on economists and politicians the way children watch clowns; we can’t wait to see them get whacked in the head or trip over each other.

But what is amusing is also instructive. Are clowns not people too? Are they not part of human life … human organization … and human economy? Every one of them is driven by the same motors that power everyone else. They want power … glory … money. But how do they get it? Can we not watch politicians and economists and learn something about ourselves?

Men Like Gods

One of the many conceits of politicians and economists is that they are somehow out of the ordinary. They are godlike, or so they pretend, having no other ambition but to make the world a better place.

Neither drink, nor meat, nor false witness cross their lips. They sweat for no material gain … and know no lust – save for the betterment of all mankind. They pass laws … they enact codes and regulations … they jiggle this lever and turn another – as if they were the masters of the whole human race, rather than mere parts of it themselves.

Since they float above it all, they are not subject to the normal temptations. The rest of us spend our whole lives like animals – craving profits, mates, status, pride, love, and money like raccoons searching for a garbage pail without a lid. Unless we are kept in tight cages, who knows what we will do?

That is why the tabloid press – especially in Britain – loves stories about government ministers having affairs with their secretaries or cheating on their income tax. Who doesn’t like to see hypocrisy revealed in public? It is as though the king himself had been caught with his pants down; we gape … and see that he is human, just like the rest of us.

But thank God there are leaders! Thinkers! Theorists with their “isms” and their rat wire … ready not merely to keep us from hurting one another, but also to give us a sense of moral purpose. It is not enough that we should each seek happiness in our own private way, we must Free the Sudetenland! Abolish Poverty! Make the World Safe for Democracy! We must realize our manifest destiny … and provide lebensraum (living space) for the German people! Full employment! A minimum wage! No humbug left behind!

We bring this up only to laugh at it.

Predictably Disastrous

In the early 20th century, John Maynard Keynes came up with a new idea about economics. The politicians loved it; Keynes explained how they could meddle in private affairs on a grand scale – and, of course, make things better.

Keynes argued that a government could take the edge off a business recession by making more credit available when money got tight … and by spending itself to make up for the lack of spending on the part of consumers and businessmen.

Keynes suggested, whimsically, hiding bottles of cash all around town, where boys might find them, spend the money, and revive the economy. The new idea caught on. Soon economists were advising all major governments about how to implement the new “ism.” It did not seem to bother anyone that the new system was a fraud. Where would this new money come from? And what made anyone think that the economists’ judgment of whether it made sense to spend or save was better than any individual’s?

All the Keynesians had done was to substitute their own guesses for the private, personal, economic opinions of millions of ordinary citizens. They had resorted to what Franz Oppenheimer called “political means,” instead of allowing normal “economic means” to take their own course. The economists wanted what everyone else wants – power, prestige, women (except for Keynes himself, who preferred men). And there are only two ways to get what you want in life, dear reader. There are honest means, and dishonest ones.

There are economic means, and there are political means. There is persuasion … and there is force. There are civilized ways … and barbaric ones. The economist is a harmless crank as long as he is just peeping through the window. But when he undertakes to get people to do what he wants – either by offering them money that is not his own … by defrauding them with artificially low interest rates … or by printing up money that is not backed by something of real value (such as gold) … he has crossed over to the dark side. He has moved to political means to get what he wants. He has become a jackass.

Keynesian “improvements” were applied in the 1920s – when then Fed governor Ben Strong decided to give the economy a little “coup de whiskey” – and later in the 1930s when the stock market was recovering from the hangover. The results were predictably disastrous. And along came other economists with their own bad ideas. Rare was the man, such as Robert Lucas or Murray Rothbard, who pointed out that you could not really improve economic results with political means.

If a national assembly could make people rich simply by passing laws, we would all be billionaires, because assemblies have passed a multitude of laws and seem capable of enacting any piece of legislation brought before them. If laws could make people wealthy, some assembly somewhere would have found the magic edicts – simply by chance.

But instead of making them richer, each law makes them a little poorer. Every time political means are used they interfere with the private, civilized economic arrangements that actually get people what they want.

Here Come the Meddlers

One man makes shoes. Another grows potatoes. The potato grower goes to the cobbler to buy a pair of shoes. He must exchange two sacks of potatoes for one pair of penny loafers. But then the meddlers show up and tell him he must charge three sacks … so that he can pay one in “taxes,” to the meddlers themselves. And then he needs to put in an alarm system in his shop, and buy a hardhat, and pay his helper minimum wage, and fill out forms for all manner of laudable purposes. When the potato farmer finally shows up at the cobbler’s he is informed that the shoes will cost seven sacks of potatoes!

That is just what he has to charge in order to end up with the same two sacks he needed to charge in the beginning. “No thanks,” says the potato man, “At that price, I can’t afford a pair of shoes.”

What the potato grower needs, say the economists, is more money! The money supply has failed to keep pace, they add. That was why they urged the government to set up the Federal Reserve in the first place; they wanted a stooge currency that would be ready to go along with their plans.

Gold is fine, they said, but it’s anti-social. It resists new “isms” and drags its feet on financing new social programs. Why, it is positively recalcitrant! Clearly, when we face a war or a Great National Purpose we need money that is willing to stand up and sign on. Gold malingers. Gold hesitates. Gold is reluctant and reticent. Gold is fine as a private money. But what we need is a source of public funding … a flexible, expandable national currency … a political money that we can work with. We need a dollar that is not linked to gold.

In the many years since the creation of the Federal Reserve System as America’s central bank, gold has remained as steadfast and immobile as ever. An ounce of it today buys about the same amount of goods and services as an ounce in 1913. But the dollar has gone along with every bit of political gimcrackery that has come along – the war in Europe, the New Deal, World War II, the Cold War, the Vietnam War, the War on Poverty, the War on Illiteracy, the New Frontier, the Great Society, Social Security, Medicare, Medicaid, the War in Iraq, the War on Terror – the list is long and sordid.

As a result, guess how much a dollar is worth today in comparison to one in 1913? Five cents.

The Road to Hell

Keynesianism is a fraud. Supply-siderism is a con. The dollar is a scam. All were developed by people with good intentions. But these good intentions not only paved the road to Hell, they greased it. There was no point putting on the brakes. Once underway, there was no stopping it. Right now, the US slides towards some sort of Hell. Half a century of deceit has produced a nation that is ready to believe anything … and go along with anything … provided it promises to make them rich.

They will be very disappointed when they discover that all the political means they counted on – the phony money, the laws, the regulations, and the wars – have made them poorer. That is when we will really need cages …

“Nothing in nature is evil,” said Marcus Aurelius. Keynes was human. Even Adolf Hitler was a man, a part of nature himself. And the Evil Empire, was it not created by men too, men who – like economists and politicians – followed their own natural impulses? Adolf may have erred and strayed. But he did so with the best of intentions: He thought he was building a better world. And he had all the “reasons” you could ask for. He could argue all day; “proving” that his plan was the best way forward.

Not that there weren’t arguments on the other side. What were smart people to do? People argued about Keynesianism for many years. Each side had good points. One was convincing; the other was persuasive. It was like a couple arguing in divorce court – the husband forgot to take out the trash and knocked over a vase; the wife ran him over with the family car. “He had it coming,” she says. What would an observer think?

No amount of logic could help him. Both parties made good points. All the judge could do was to fall back on his own deep sense of right and wrong, of proportion … and good taste. “She shouldn’t have run him down,” he says.

“Love the man, hate the sin,” say the Baptist preachers. They have a useful point. There’s no point in hating Adolf, Josef, Osama … John Maynard … or any of the other thousands of clowns who entertain, annoy and murder us. They are God’s creatures too, just like the rest of us. What they did wrong was what they always do wrong … they all resorted to political means, to get what they wanted.

We do not hate them; we just hope they get what they deserve.

The above article is from Diary of a Rogue Economist originally written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.

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Are the Swiss Going Crazy?

by Pater Tenebrarum

Swiss Referendum on Introducing the World's Highest Minimum Wage

Most of our readers probably know what we think of minimum wages, but let us briefly recapitulate: there is neither a sensible economic, nor a sensible ethical argument supporting the idea.

Let us look at the economic side of things first: for one thing, the law of supply and demand is not magically suspended when it comes to the price of labor. Price it too high, and not the entire supply will be taken up. Rising unemployment inevitably results.

However, there is also a different way of formulating the argument: the price of labor must not exceed what the market can bear. In order to understand what this actually means, imagine just for the sake of argument a world without money. Such a world is not realistic of course, as without money prices the modern economy could not exist. However, what we want to get at is this: workers can ultimately only be paid with what is actually produced.

As Mises has pointed out, most so-called pro-labor legislation was only introduced after enough capital per worker was invested to make the payment of higher wages possible – usually, the market had already adjusted wages accordingly.

However, unskilled labor increasingly gets priced out of the market anyway, which is where the ethical argument comes in. If a worker cannot produce more than X amount of  goods or services, it is not possible to pay him X+Y for his work. Under minimum wage legislation he is condemned to remain unemployed, even if he is willing to work for less.

In Switzerland, the unions have recently managed to get the demand for minimum wage legislation on one of the quarterly referendums in the country. An interesting point has been brought up by one of the opponents in the course of the debate, but first a little background information:

“Jasmin Eicher has already axed her sole full-time employee to keep afloat her shop selling cards, candles and paper in a Zurich suburb. If Switzerland approves what would be the world’s highest minimum wage, she says the only option would be to close her door.

The Swiss will vote in a national referendum May 18 on whether to create a minimum wage of 22 francs ($25) per hour, or 4,000 francs a month. While about 90 percent of workers in Switzerland already earn more than that, employers say setting Switzerland’s first national wage floor would push up salaries throughout the economy. When adjusted for currency and purchasing power, it would be the highest minimum in the world.

“We couldn’t pay it,” said Eicher, standing behind the counter in her shop in Schlieren. The employee she let go earned 3,500 francs a month. Now she’s by herself, working 10 hours a day, six days a week, and her hopes of hiring a cheaper helper would be dashed if the proposal passed.

“Of course I understand about people not earning enough, but not everyone is worth 4,000 francs. Here in Switzerland we’re already so well-off,” she said.

The chief backers of the proposal are Switzerland’s biggest trade unions, which argue that pay levels need to reflect the country’s prices – among the world’s highest.”

George Sheldon, professor of economics at the University of Basel, said the Swiss proposal would be counterproductive.

“Unemployment among the unskilled is increasing,” he said in a phone interview. “The solution to their problem can’t be to make them more expensive.”

(emphasis added)

So, 90% of all employees are already paid more than the proposed minimum wage. It turns out that virtually all the biggest companies pay salaries above what would be the world's highest minimum wage – but that is not the main problem.

Who Would Lose Out?

The point we actually wanted to get at is touched upon in the following excerpts:

“Despite being home to multinational corporations such as KitKat-candy-maker Nestle SA and drugmaker Novartis AG, Switzerland gets two-thirds of its employment from small and medium-sized enterprises.

The Association of Swiss Cleaning Companies, Allpura, opposes the minimum wage, saying it would lead to job cuts and worse working conditions. It says employees in the sector earn between 18.50 francs and 26.50 francs per hour.

Big companies including Nestle, Novartis and Swatch Group AG are against the measure too, saying it will hurt the economy.

“State intervention in the liberal economic system also goes against the market economy principles of our society that have been so successful to date,” Novartis spokesman Dermot Doherty said via e-mail.

At Nestle, the wages of all Swiss employees are above the proposed minimum, spokesman Philippe Aeschlimann said. “A higher cost of labor would however affect companies in our supply chain and our Swiss customers,” he said via e-mail

“A minimum wage won’t stop poverty,” Economy Minister Johann Schneider-Ammann said at a press conference in Bern in February. “This new system could be counterproductive.”

According to Boris Zuercher, head of the Employment Directorate at the State Secretariat for Economic Affairs, the uniform wage would get passed on to consumers in the form of higher prices and will ultimately result in job losses among low-wage earners. Workers earning between 4,000 and 6,000 francs a month — 40 percent of the full-time workforce — will seek higher pay too, he said.

“The main criticism is that it’s an enormously high minimum wage — it would be the highest internationally,” Zuercher said, speaking by phone from Bern. “It’s not a question of Novartis or UBS not being able to afford to pay 4,000 francs, but some little company in a remote valley.”

By contrast, the Swiss Federation of Labor Unions says a minimum wage wouldn’t lead to higher unemployment because it would mostly affect domestically-oriented sectors where outsourcing isn’t possible.”

(emphasis added)

The first salient point is the fact that once this new minimum wage law is introduced, upward pressure on all wages would likely ensue. Note in this context that Switzerland is awash in newly created deposit money due to the ministrations of the SNB, which is manipulating the Swiss franc's exchange rate (a few charts on Swiss monetary inflation over recent years can be seen in our article 'How Safe is the Swiss Franc?'. The article is slightly dated, but it still serves to illustrate the point). So there is no brake on prices and wages due to  a lack of money supply inflation – rather the opposite. Naturally, wages would not be the only thing rising under these circumstances – prices would be adjusted accordingly, and in the end the purchasing power of the higher wages would not be greater than before.

The second important point is the one about which enterprises would suffer the most on account of such legislation. When the union official cynically comments that 'only businesses that cannot be outsourced will be hit' (i.e., those who cannot vote with their feet and simply flee), he forgets to mention that small and medium-sized companies as a rule cannot 'outsource' their operations either, almost regardless of what they are producing. We felt reminded of something a friend of ours mentioned to us recently: “The problem of today's form of capitalism is that there are not enough capitalists:”

Indeed, an individual entrepreneur running a small business has a very difficult life already, as every new imposition is much harder to overcome for a small business than it is for a large corporation. This is also why we often find that big corporations don't resist new regulations: they reckon they are likely to keep competition from upstarts at bay. It is laudable that several big Swiss corporations are evidently not following this trend.

If Swiss voters agree to introducing a new minimum wage law, they would end up doing incalculable damage to Switzerland's entrepreneurial culture. At the moment, Switzerland is still one of the freest economies in the world. It has been extremely successful so far and its achievements would clearly be put at risk. Hopefully Switzerland's voters won't be swayed by union's arguments.

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4 reasons the first quarter was better than it appeared

By Tim Clift

Opinion: High-flying stocks fell to more reasonable levels

Half full, not half empty: Equities may not have gained much so far this year, but there were important changes in the market.

After the S&P 500 Index ended last year at an all-time high (with a 10.5% gain in the fourth quarter alone), optimism and momentum were strong leading into 2014. But something changed all of a sudden.

Instead of extending its advance, the benchmark index eked out an increase of only 1.80% during the first quarter. (The bond market, as measured by the Barclays Capital Aggregate Index, climbed 1.84%.) And the S&P 500 fell as much as 4% in the current quarter.

What’s worse, the stock market was driven in the first quarter primarily by “boring” stocks like utilities and “old technology” companies including Microsoft /quotes/zigman/20493/delayed/quotes/nls/msft MSFT -0.47% . Darlings such as /quotes/zigman/63011/delayed/quotes/nls/amzn AMZN -0.53% , Facebook /quotes/zigman/9962609/delayed/quotes/nls/fb FB -0.57%  and Gilead Sciences /quotes/zigman/72849/delayed/quotes/nls/gild GILD +0.46% fell, and the magnitude of the reversal was breathtaking.

For example, biotechnology and social-media stocks, the two best-performing groups in 2013, suffered a significant drop after a positive start in 2014. The iShares Nasdaq Biotechnology ETF /quotes/zigman/85342/delayed/quotes/nls/ibb IBB -0.46% ended the first quarter with a 16% drop from its high during the period, as did Facebook, the largest of the social-media stocks.

On the macroeconomic front, it didn’t look much better. Largely due to severe weather, first-quarter gross domestic product (GDP) growth is expected to slow to less than 1% when the government releases its results, compared with 2.6% in the fourth quarter.

As the great economist Paul Samuelson said: “The stock market has predicted nine of the last five recessions.” One little-changed quarter is hardly the end of the world. In fact, once you look beyond the headline numbers, we believe that you’ll find positive developments that are constructive for a sustained, secular bull market. Here are the top four reasons why the first quarter was, to us, healthy for stocks. And how that could lead to another bull market this year.

1. The correction in momentum stocks removed a lot of “froth”

It is important to understand that today’s high price-to-earnings momentum stocks, such as and Facebook , are not the same as many of the dot-com high-fliers of the tech bubble. Today’s tech stars tend to have real businesses, revenues and earnings, and some of them are mega-caps with market capitalizations above $50 billion. A couple of them even exceed $100 billion. These stocks do matter to the stock market. For example, the biotechnology group makes up nearly 25% of the health-care sector, which is the third-largest economic industry in the S&P 500.

The decline of these high-fliers, which brought their price-earnings multiples to more “normal” levels, was effective in lowering the valuation of the broader market. But the big drops were generally limited to these stratospherically priced shares, not the market overall.

In addition, the money that left these high P/E shares did not appear to leave the stock market — it simply moved to those with more reasonable valuations: the “boring” stocks. That’s why, despite the severe sell-off of high P/E momentum stocks, the overall market barely budged. This market leadership rotation from high-P/E stocks to low-P/E shares is a timely and healthy development, as the primary concern of most investors has shifted from the health of the economy to the fundamental valuation of stocks.

2. Interest rates are falling

The only things that are certain in life are death and taxes, and now we can add rising interest rates. Or not. Although the much-dreaded quantitative-easing tapering has begun, interest rates actually trended lower during the first quarter. That’s right — interest rates fell. Ten-year and 30-year Treasury yields, the long-term interest rates most critical to mortgage rates (and thus the housing market), tumbled 31 basis points to 2.7% and 41 basis points to 3.56%, respectively. As for the 5-year and 7-year Treasury yields, the interest rates most critical to consumer loans such as car loans, they too ended the quarter lower than they started. Lower borrowing rates can help stimulate more consumer purchases, feeding economic growth and providing a catalyst for higher stock prices.

3. The euro zone is recovering

While Russia and Ukraine dominated the headlines, the euro zone economy continued its recovery. European stock markets actually outperformed the U.S., especially the much-loathed peripheral countries affectionately named “PIIGS” (Portugal, Italy, Ireland, Greece and Spain). The stock markets of the two biggest peripheral countries, Italy and Spain, gained 14% and 5%, respectively. Even Greece, the poster child of the European sovereign debt crisis, registered a double-digit increase.

4. Healthy skepticism

“Flash Boys,” Michael Lewis’ new book, asserts that the high-frequency-trading market (HFT) is “rigged.” Although Lewis applied that damning word to a small part of the stock market that affects only a few market participants, such as program traders and penny-stock day traders, it has caused a major kerfuffle across Main Street and Wall Street. The popularity of the book confirms that most investors are not jubilant and blinded by market gains, and in fact retain a healthy level of skepticism. That is healthy, and far from the euphoria that’s a hallmark for stock market tops.

As wonderful as big stock market gains may feel, investors need to bear in mind that back-to-back double-digit quarterly gains and 30%-plus annual gains are rare. They may even be unhealthy. Typically, after a period of strong gains, the stock market needs a breather. The rotation from high-fliers to underperformers is necessary for the stability of the overall market. Profit-taking and a fresh look at stock valuations are signs of a robust market taking a rest.

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Why do Investors Love Large Hedge Funds?

by Attain Capital

It’s the always present question mid-size and start-up funds ask themselves day in and day out. Why do investors keep plowing money into the largest of the large hedge funds when the statistics have shown time and again that those large hedge funds tend to underperform their smaller counterparts. Alternatives research and analysis firm Preqin tackles the question with some hard data in their most recent piece: “What are Investors Looking For?”, showing that the small and mid-size hedge funds outperformed the largest funds by about 1.7% in 2013:

Preqin 2013 AUM performance

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy: Preqin

One answer to the large versus medium/small debate given by some institutional investors we’ve talked to, highlights the deviation in returns, not the returns themselves,  as the reason to choose a ‘brand name’ Billion Dollar+ hedge fund over a smaller upstart which may provide better performance. The logic is that while they may perform a little worse in terms of return – their worst case scenario is a lot less when choosing Goliath over David.  This is the same reason we reach for the Kraft Macaroni and Cheese versus the generic brand, why all else being equal we go with American Airlines instead of Spirit, and so forth. It’s not all about saving money (or making more of it in case of hedge funds), it’s about having a sense of comfort as well.

But how much of this type of “comfort” are the biggest hedge funds really delivering?  To dive deeper, we took a look at Preqin’s details on how the hedge fund performance in these different size groups was dispersed.

“Fig. 2 shows performance over 2013 according to the 25th percentile, median and 75th percentile values among each of the fund size categories, and the data shows that the top three-quarters of all fund groups achieved positive returns in 2013.”

Performance by Percentile

(Disclaimer: Past performance is not necessarily indicative of future results)
Chart Courtesy:Preqin

The invest with a behemoth logic would have us believe the dispersion of the small and medium size funds would be many times that of the large funds in order to make up for the underperformance of the behemoths, and that the so-called worst case scenario of the small and medium size funds would be much worse than the billion dollar big boys. But the stats show quite a different story (at least in 2013…), with the 25th percentile return for the big boys (the worst case) actually less than the 25th percentile average return for the small and medium-sized funds (the startup funds came in a distant fourth).

And what about that comfort level, the dispersion in the large hedge funds returns was indeed less, but not drastically so. Consider medium ($500-999mm) versus large funds ($1b+), where the medium had returns 1.13 times the large, yet a deviation less than that (just 1.06 times as large as the large), and a worst case scenario 1.38 times better. Now, one year doesn’t tell the whole story, and the data for the smallest hedge funds (under $100mm) support the comfort argument with higher deviation and a worse worst case scenario – but don’t throw the proverbial baby out with the bath water by lumping in small and medium-sized hedge funds with the startups. The small and medium-sized provided better returns, with similar comfort in 2013.

Hudge Fund AUM Deviation

(Disclaimer: Past performance is not necessarily indicative of future results)

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Do Soybeans Offer More Profit?

By: Chris Barron

For some time now, market analysts have been assuming that we might see a fairly large acreage shift from corn on corn back to more soybeans. This could be the case in general; however, be sure to stay focused on your individual numbers.

The idea that producers will switch from corn to soybeans assumes there must be more profit potential in soybeans compared with corn, or that the cost of growing soybeans is significantly less and could reduce overall cash flow requirements. Don’t be so sure without running a number of different scena­rios. Planting more soybeans doesn’t neces­sarily equate to more profitability or less risk. Unless you have a compelling agronomic reason for planting more soybeans, it’s critical that you run the numbers, even up to the last minute.

Consider the following factors as you analyze your final or last-minute rotation and planting decisions: What are the realistic yield prospects between corn and soybeans; gross income differences; and current risk management/marketing tools?

Yield prospects for corn versus soybeans on an individual farm-by-farm basis can greatly vary. Assuming market prices stay at current levels, maximizing yield is the most effective way to improve profit potential. Look at your yield history and see which crop has been more consistent or provided the highest yields.

Has continuous corn or your previous crop rotation been effective in the past? If so, ask yourself the reason for changing a success­ful pattern. I’m not advoca­ting planting more corn neces­sarily, but I am encour­aging every producer to analyze every acre for maximum profitability.

Gross income is another consid­eration that affects produ­cers who rent land. High cash rents can make it virtually impossible to profitably grow soybeans without achieving maximum yield potential. For example, assuming a cash rent price of $350 per acre, it would take $6.36 per bushel at 55 bu. soybeans, or the first 31 bu. of production, just to cover land cost. Higher rent prices can easily account for 50% of production costs.

Equipment should be another focal point. Analyze your current equipment costs on corn versus soybeans. If planting more soybeans requires additional equipment investment, be sure to correctly evaluate the cost. Adding more soybean acres doesn’t necessarily guarantee a reduction in equipment cost.

Lack of Revenue Guarantee.
Risk-management decisions go hand in hand as we evaluate profit opportunities between corn and soybeans. The primary challenge for many producers considering more soybean acres is the lack of revenue guarantee compared with corn.

For example, many producers can purchase as much as $350 per acre more revenue coverage on corn than with soybeans. For most producers, the revenue coverage for private insurance and the agricultural risk coverage (ARC) through the farm program provide a substantially higher coverage level by planting corn. Actual production history (APH), county yield averages and the level of crop insurance coverage all have a direct impact on the best rotation for your farm.

Marketing opportunities between corn and soybeans could be anyone’s guess during the growing season. Regardless of your acreage mix, be sure to continuously monitor your cost of production in order to have a clear understanding of exactly where your profits begin and end. Profit oppor­tu­nities will likely be short-lived on rallies this year.

If you’d like a side-by-side comparison tool for corn versus soybeans, please let me know and I will email you a copy.

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Three Variables to Consider Before Investing in Gold

By: DailyGainsLetter

George Leong writes: While there continue to be many gold bugs out there, I’m not one of them—but I do see gold as a trading opportunity.

Given what we have seen so far and looking ahead, I just don’t see gold as a buy-and-hold strategy at this time. Yes, there’s money to be made, but it’s going to be for traders only.

The recent break below $1,300 an ounce and the subsequent rally to the current $1,325 level is an example of such a trade, not a new trend that’s developing on the charts, based on my technical analysis. The chart below shows the potential declines in the metal towards $1,200 and $1,100 an ounce.

Chart courtesy of

Many gold supporters will counter that China is hoarding gold and India will soon pick up its buying. While I don’t argue against this, I just don’t see the yellow metal retaining its luster at this point unless a war breaks out in Ukraine and Russia intensifies its threat. If this should happen, it would drive Russia’s gross domestic product (GDP) growth lower and could result in the fragile eurozone and European economies retrenching back into a recession that just ended.

I wrote about gold several weeks back as a trading opportunity on dips below $1,300. I continue to hold on to that belief, but longer-term, the yellow metal could fade and fall back towards $1,200 or less.

My thinking is that inflation is nowhere to be seen in the United States, China, or Europe. (In fact, deflation may be more of a concern here.) And unless inflation picks up, the yellow metal isn’t going higher on a sustained move. That’s one of my top reasons why gold may head lower.

A second reason is that the Federal Reserve is continuing to cut its quantitative easing via its monthly bond purchases. The move is meant to force yields, interest rates, and the U.S. dollar higher. If it succeeds, the stronger value of the greenback will negatively affect demand for the yellow metal, which is priced in U.S. dollars.

My third reason is that, unless economic growth falters in this country, we will likely see capital move into the stock market and equities versus gold. After the strong returns in 2013 coupled with the poor start to 2014, traders are likely to be more inclined to funnel money into stocks than gold at this time.

Now, if the economy does weaken and a conflict escalates in Europe, gold would then move higher under these circumstances, but its sustainability would be an issue.

So the way I view it is that gold is only for traders and not for buy-and-hold investors at this time. If the three variables I talked about hold true, then investors can expect the yellow metal to inevitably trend lower. But, of course, there will be quick shorter-term trading opportunities that will still surface.

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GOLD Elliott Wave Down D Wave

By: Gregor_Horvat

On Gold we presented  a triangle idea few weeks back, with wave C rally up to 1380/1400 resistance area. Market sold of sharply from that levels  in March and it seems that price is ready to continue lower in April as current decline looks impulsive, labeled as wave (a). With that said, we suspect that wave D will fall down to around 1240/1270 zone after a completed sub-wave (b) that may look for a top formation in the next week or two in 1320/1360 area.

GOLD Daily Elliott Wave Analysis

GOLD Four Hour
Gold has recovered up to 1320-1342 resistance area that we highlighted it several times in our past updates. We also noted that bearish reversal could be near if we consider a double zigzag from the low. Well, market fell very sharply yesterday and finished the day around 1300 area which suggests a completed recovery in wave (b). So we anticipate further weakness now, ideally market will move beneath 1277 by the end of the week. 1331 is now new short-term critical resistance.

GOLD 4h Elliott Wave Analysis

GOLD One Hour
Yesterday some commodities fell sharply, and gold was no expectation. We have seen a very powerful bearish move away from 1330 that has unfolded in five legs so we think that this market will go even lower, but after a three wave bounce. We see nice resistance zone for wave c at 1310-1315.

GOLD 1h Elliott Wave Analysis

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Enter the Pound

by Greg Harmon

The focus in the equity world has been on the Dollar, Euro and Japanese Yen. Will the Dollar weaken? Will the ECB cut rates to weaken the Euro? Will Japan finally be able to create some inflation by weakening the Yen? What gets lost in this is that the winner of the currency wars has been the British Pound. A quick look at the chart of the currency measured in Dollars below shows a clear trend higher since July, nine months. It has leveled a bit recently but the most recent action shows that there may be an opportunity to put on a tending trade in Sterling. In technical terms it is testing resistance from a higher low and building an ascending triangle. A break of the triangle higher would target a move to 173.50. That is a big move for a currency.


This level has some additional significance. Looking on a wider view at the monthly chart shows that this is near the 50% retracement of the move lower in 2008 at 173.66. So with a move finally getting some space from the 38.2% retracement at 164.81 and the 200 month SMA at 166.38 as a natural stop level it is ready for a trade. For an equity player this move can be played with the ETF $FXB. Due to the fee structure a direct play should look for a move over 165.75 on the ETF as a trigger.

xbp m

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Mixed long/short open position
Today we stopped on XOM       

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1 with Stop Loss at Breakeven

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