Archives for February 2014

World Money Analyst Update on Europe

Outside the Box: World Money Analyst Update on Europe

By John Mauldin

For the last two weeks on Thursdays we have brought you special editions of Outside the Box featuring World Money Analyst Managing Editor Kevin Brekke’s interviews with WMA contributing editors. We heard from Ankur Shah on emerging markets and Alexei Medved on Russia, and this week we wrap up the series with a frank, hard-hitting interview with Dirk Steinhoff, who covers the European and Scandinavian markets for WMA.

Kevin and Dirk are both based in Switzerland, and so they lead off with a discussion of the recent Swiss referendum on immigration. Dirk’s interpretation of the vote, which imposes quotas on the number of foreigners allowed to enter the country, is that it has implications for the entire European Union:

[T]he Swiss people basically decided that they want to control immigration themselves and do not want to give up this control to the centralized administration in Brussels. I think that this is a clear signal to the Swiss government that the Swiss people don’t want to give up more sovereignty and that they would like to see more decentralization in the future.

Which leads Kevin and Dirk to take up the broader issues of the unresolved Eurozone debt crisis, unemployment mess, and the fate of the euro. With EU parliamentary elections coming up in May, there is change in the air! OK, let’s turn it over to Kevin and Dirk for the details.

John Mauldin, Editor, Outside the Box


World Money Analyst Update on Europe

World Money Analyst: With me today is Dirk Steinhoff. Dirk is a contributing editor at World Money Analyst and covers the European and Scandinavian markets. Great to have you with us.

Dirk Steinhoff: Thank you very much for having me.

WMA: Seeing that you're in Zurich and I'm in Fribourg, let's start with a look at developments in our own backyard. The Swiss are known for their system of direct democracy via use of the referendum. The recent success of a referendum that will restrict immigration into Switzerland made global headlines. What’s your position on the immigration issue and the consequences of this vote?

Dirk: First of all, I should mention that I was born and raised in Berlin and moved with my family to Switzerland in 2007. One of the main reasons why I decided to leave Germany and come to Switzerland, next to the great Swiss landscape, was the strongly centralized development of the European Union, which reminds me painfully of the political system in the former DDR [communist East Germany].

European politicians live a life that is completely detached from those that don’t belong to this elitist political class. Their decisions are based on distorted experience and lobbyist influence and not on real life experience and independent judgment. The strong, centralized power of Brussels, in combination with the desire to regulate everything in life, increasingly limits personal freedom, limits the development of entrepreneurship (and therefore the creation of non-government-related workplaces), and eliminates local, regional, and national characteristics.

The state is much less dominant in Switzerland, mainly due to its federalist and decentralized political system, which limits the power of the federal government. Due to my own background and my own moral conviction, I personally believe that every human being should be able to live and work wherever he or she wants, as long as they are self-reliant, willing to integrate, and do not become a burden to the community they recently entered.

My interpretation of the referendum is that the Swiss people basically decided that they want to control immigration themselves and do not want to give up this control to the centralized administration in Brussels. I think that this is a clear signal to the Swiss government that the Swiss people don’t want to give up more sovereignty and that they would like to see more decentralization in the future.

It also interesting to note that most of the media in Europe (even Swiss media) were shocked by the outcome of the vote. In sharp contrast, other polls in various European countries actually show that most citizens would have voted similarly to the Swiss, and some by an even higher margin than the outcome of the Swiss vote. I think that in the long run more and more of the European people will ask for the Swiss model of democracy to be implemented in their home countries.

Although the rhetoric used by politicians in Europe might change to the negative in the short term, I do not think that the referendum will have a long-term negative effect on the relations between Switzerland and Brussels. I believe that Brussels has to come to terms with our form of democracy and has to respect our sovereignty, even if they might disagree with some of our decisions.

WMA: The immigration debate is not unique to Switzerland, of course, and is a divisive issue across Europe. This seems to be part of a trend where we've seen a rise in popularity of nationalist and anti-euro parties? What's your view?

Dirk: You are right. The severe criticism of Switzerland because of the outcome of the referendum has eclipsed the fact that many European countries face the same issue. People are not only unhappy with the immigration politics within the EU, they are becoming more EU skeptical in general.

The political parties critical of the European Union – like the UK independence party in Great Britain, the Finns Party (formerly the True Finns) in Finland, the Lega Nord in Italy, the FPÖ in Austria, the AfD in Germany, the French Front Nationale, the Golden Dawn in Greece, and the Party of Freedom in the Netherlands – are gaining popularity. Of course, the reasons for and the scope of their EU criticism vary a lot. 

I think this trend can be summed up as follows: the people want to have a voice and be able to decide their own fate! Pretty much everybody in the EU is unhappy about one issue or another. The Southern European countries are unable to cope with the austerity measures, and on the other hand you have a large part of the German population that is simply unwilling to continue financing the complete EU.  I believe this trend will gain momentum, and it will bring some surprises in the elections to the European Parliament in May 2014.

Europe has so many different cultures that centralization just doesn’t work, because there isn’t a one-size-fits-all answer to most issues. The euro is a perfect example of this!

WMA: That's an important point on the euro. With the continued rise of anti-euro sentiment, what is your outlook for the currency? Will the euro survive?

Dirk: I don’t know. There are different scenarios that I can imagine for the euro: strong countries leaving the Eurozone, unwilling to pay for a bottomless pit of EU debt; weak countries leaving the Eurozone in order to be able to devalue their currencies and regain competiveness; or a split into a strong northern euro and a weaker southern euro. Or some combination of these. As you can see, there are many possibilities, and what we will see depends on economic and political developments in European countries over the next several years. In my view, something will happen and we won’t have the same euro in five years time that we have today.

WMA: The adoption of the common currency has limited how individual countries can respond to fiscal stresses. News about the euro debt crisis has been very quiet lately. What is the situation?

Dirk: As you say, there has hardly been any news recently regarding the troubles in the EU, which does not mean that the problems are solved. They are still bubbling under the surface. With the current papering-over and continuation of indebtedness, the need to address the problems, with their inherent negative consequences for most people, has been postponed. Because of that, most of the harsh protest has faded and turned away from the streets and is canalized into the euro-skeptic political parties. And when there have been noteworthy protests, such as last November in French Brittany, media coverage was excluded.

What has changed in the last year? Absolutely nothing fundamentally! So the euro crisis will at some point reappear with all its inevitable consequences.

WMA: You mention France, so let's continue down that path. The small and mid-sized Eurozone countries – Spain, Portugal, Italy, and Greece – are essentially bankrupt as measured by GDP and in receivership by Brussels. Today, there is growing speculation that France, too, is headed for trouble soon. What do you think?

Dirk: I totally agree! They have too much debt, a radical socialist government, and absurd, business-unfriendly regulation. I have several friends who are business owners in France, and they are all contemplating leaving the country and moving their businesses abroad.  The quantity of regulation they have to comply with simply cannot be handled by a normal business, and the labor laws are so strict that no business owner in their right mind wants to take on the risk of employing someone.

Taking into consideration the unhealthy debt levels they have, the unsustainable social programs they offer, and the complete lack of any growth impulses, I have to believe that the French are indeed headed for trouble soon. And, as the second largest economy in the EU, France matters. If France stumbles, the EU is at risk.

WMA: Drawing on your comments about strict labor laws, the unemployment numbers in many EU countries are mind-boggling. You discussed this situation in your recent article for World Money Analyst. Can you talk about this for a minute?

Dirk: As we have seen since 2008, the trillions in newly created fiat money have mainly fueled asset bubbles. However, the real economy has not profited from it, because this money has not been lent to private industry. We are still facing 30% lower money velocity than before 2008 and that means that more than 30% of credit in circulation has disappeared. This is also why the real economy is still going down the drain.

Most jobs have been created within the government or government-related entities; and as we all know, these jobs are paid for by the taxpayers and are not a source of production. Therefore, I personally believe the situation in the labor market will further deteriorate, especially among the young generation, below 25; they are going to suffer the most. The current youth unemployment rates in Spain and Italy are just shocking: 58% and 42%, respectively. We are losing a whole generation, and we cannot predict how drastically the damage we are doing to them will play out in the future.

WMA: High and sustained rates of joblessness can lead to frustration and anger by the unemployed that turns to civil unrest and protests. We've seen riots in several EU countries, including France, Greece, and Bosnia. Is that also a real danger for the stronger European countries?

Dirk: Yes, this is a real danger. As soon as the deterioration of people's personal economic situations reaches a certain level they will be on the streets, and that includes the streets of the stronger countries. At the moment, most people still believe that all the debt and all the rescue programs come for free.

WMA: What does this all mean for the outlook for European stocks and bonds?

Dirk: That you have to watch closely what the European Central Bank and governments do. It’s a tricky situation – you don’t want to miss any upside rallies in equities and bonds induced by loose monetary policies. Yet, on the other hand you know the party could end at any time. Risk management is essential.  The day of reckoning can be postponed by governments and central banks much further – as we know from the US and Japan – than common sense would allow for.

WMA: In your opinion, what European countries have the best economic outlook?

Dirk: The countries that have been strong in the past, with competitive industries and with sound current-account and budget balances. Countries like Germany, Austria, Denmark, Sweden, and Norway. And Switzerland. 

WMA: As you mentioned above, in May 2014 there will be the EU Parliament election. Will that change anything?

Dirk: The potential increase of parliamentarians that are critical of Europe I mentioned before could intensify tensions within the EU and complicate the functioning of the EU system. But I don’t expect a quick change.

WMA: We must talk about the un-loved Swiss franc. Since Switzerland began intervention in the currency markets to halt the rise of the franc against the euro, the mainstream consensus has it that the franc is doomed. But the performance of the franc against other currencies, in particular the US dollar, has been very strong. What's your take on the Swiss franc going forward?

Dirk: It’s hard to say. In a euro crisis I would expect the Swiss National Bank [the central bank] to remove the floor to the euro. In such a situation the power of the SNB to keep the floor would be simply too small, I think. There are also attempts in Switzerland to once again constitutionally back the Swiss franc by gold. We’ll have to see. The Swiss franc, to me, still belongs to the upper class of paper currencies.

WMA: Do you have any last thoughts for our readers?

Dirk: Globally, we have entered a time when substantial corrections of past misadventures are likely to occur. It’s not the end of the world, but it's worth being prepared.

WMA: I really appreciate your insights on the European markets. Thank you for taking the time to speak with us today.

Dirk: The pleasure was mine.


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Top picture by Dimitry B / Flickr, CC via Business Insider. 

Second picture by CityRoom via Business Insider. 

Third picture via Financial Sense. 


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New Spy Technology To Spawn Oil Revolution

Courtesy of James Burgess of

New Spy Technology to Spawn Oil Revolution

The future of oil exploration lies in new technology–from massive data-processing supercomputers to 4D seismic to early-phase airborne spy technology that can pinpoint prospective reservoirs.

Oil and gas is getting bigger, deeper, faster and more efficient, with new technology chipping away at “peak oil” concerns.  Hydraulic fracturing has caught mainstream attention, other high-tech developments in exploration and discovery have kept this ball rolling.

Oil majors are second only to the US Defense Department in terms of the use of supercomputing systems, which find sweet spots for drilling based on analog geology. These supercomputing systems analyze vast amounts of seismic imaging data collected by geologists using sound waves.

What’s changed most recently is the dimension: When the oil and gas industry first caught on to seismic data collection for exploration efforts, the capabilities were limited to 2-dimensional imaging. The next step was 3D, which gives a much more accurate picture of what’s down there.

The latest is the 4th dimension: Time, which allows explorers not only to determine the geological characteristics of a potential play, but also tells them how a reservoir is changing in real time.   But all this is very expensive.  And oilmen are zealous cost-cutters.

The next step in technology takes us off the ground and airborne—at a much cheaper cost—according to Jen Alic, a global intelligence and energy expert for OP Tactical.

The newest advancement in oil exploration is an early-phase aerial technology that can see what no other technology—including the latest 3D seismic imagery—can see, allowing explorers to pinpoint untapped reservoirs and unlock new profits, cheaper and faster.

“We’ve watched supercomputing and seismic improve for years.  Our research into new airborne reservoir-pinpointing technology tells us that this is the next step in improving the bottom line in terms of exploration,” Alic said.

“In particular, we see how explorers could reduce expensive 3D seismic spending because they would have a much smaller area pinpointed for potential.  Companies could save tens of millions of dollars.”

The new technology, developed by Calgary’s NXT Energy Solutions, has the ability to pinpoint prospective oil and gas reservoirs and to determine exactly what’s still there from a plane moving at 500 kilometers an hour at an altitude of 3,000 meters.

The Stress Field Detection (SFD) technology uses gravity to gather its oil and gas intelligence—it can tell different frequencies in the gravitational field deep underground.

Just like a stream is deflected by a big rock, SFD detects  gravity disturbances due to subsurface stress and density variations.   Porous rock filled with fluids has a very different density than surrounding solid rocks. Remember, gravity measurement is based on the density of materials. SFD detects subtle changes in earth’s gravitational field.

According to its developers, the SFD could save oil and gas companies up to 90% of their exploration cost by reducing the time spent searching for a reservoir and drilling into to it to determine whether there’s actually any oil and gas still there.

“Because it’s all done from the air, SFD doesn’t need on-the-ground permitting, and it covers vast acreage very quickly. It tells explorers exactly where to do their very expensive 3D seismic, greatly reducing the time and cost of getting accurate drilling information,” NXT Energy Solutions President and CEO George Liszicasz, told in a recent interview.

Mexico’s state-owned oil company Pemex has already put the new technology to the test  both onshore and offshore in the Gulf of Mexico, and was  a repeat customer in 2012.  They co-authored with NXT a white paper on their initial blind-test used of the survey  technology.

At first, management targeted the technology to frontier areas where little  seismic  or well data existed.  As an example, Pacific Rubiales Energy is using SFD technology in Colombia, where the terrain, and environmental concerns, make it difficult to obtain permits and determine where best to drill.

The technology was recently contracted in the United States for unconventional plays  as well.

Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Energy Intelligence Report gives you this and much more. Click here to find out more.

Stocks Close At New Record High On Russian Invasion, GDP Decline And Pending Home Sales Miss

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

With the Ukraine now openly appealing to the world to halt what in its own words is a Russian invasion, it only made sense that after the bigger than expected downward revision to Q4 GDP, and the miss in Pending Home Sales, that the S&P would close at a new all time high. Oh, there was that surge in the Chicago PMI which confirmed that the February weakness across all other data was not due to the weather, and which is all that the market decided to focus on.

And so once again, the fact that it was 3:30 pm at the end of the day – easily the most "fundamental" driver of stock valuation in the past five 5 years – overruled all bad news, or is it good news? It is confusing what the catalyst for stock surges any more is – is bad good news great, or is good news greater – aside from the Fed's relentless growing balance sheet of course.

We are at a loss what else to highlight here: maybe the fact that despite the sheer euphoric idiocy the Nasdaq did finally closer lower.

All one can do at this point is sit back and laugh at the complete abortion that Ben Bernanke's, and now Janet Yellen's centrally-planned "market" has become.

Stiglitz: Leaving the Euro Painful but Staying in More Painful; Eurozone Breakup Recap

Courtesy of Mish.

Nobel prize winning economist Joseph E. Stiglitz has come to the right conclusion Leaving the Euro Painful but Staying in More Painful.

Partial Transcript

Question: I want to probe you a bit on that small mistake of the euro. UYou seem to suggest there is nothing that cannot be solved with more European solidarity and I agree with that intellectually. But if you are politically realistic, I don’t think it is going to be forthcoming. I don’t see large checks being written by German politicians to subsidize for example, the Spanish or Greek unemployed. So if you think about that perspective, and put yourself in the shoes of a 30-year old Spaniard or Greek head of household who has no prospect of employment, would it not be better is countries left the eurozone altogether?

Stiglitz: As I said in my talk the reality is, if the reforms I described were made, Germany would not have to write large checks. It more likely to pay a high cost for not making these reforms.  … But I think your description of the reality of the way the dialog is going in Germany is absolutely correct. And that is one of the reasons I am a little depressed about the future of Europe. It’s going to be a hard row to persuade Germany to make these reforms even if they would cost less. And that leaves Spain and Greece with an important debate, a policy question, what should they do if the reality is there won’t be these reforms. To me the real risk is the following: Europe is going to dangle out just enough hope that Spain and Greece and the other periphery countries will say, they are going to come to our assistance. …. But they are going to dangle enough hope that people won’t want to leave the euro, but in fact, there will be so little reform there will be literally no time soon the countries will emerge from depression. SAo my advice would be along the lines of what you are hinting at: They should probably face the reality that there is not going to be political reform that will make the euro viable for the periphery … that internal devaluation won’t work, that leaving the euro will be painful, but staying in the euro will be more painful.

Among economists, there is an easier solution, that many people have argued, that Germany should leave. If Germany leaves, the value of the euro will go down, the competitiveness of the southern 
countries would become substantially enhanced. They can design a set of economic policies that work for a large group of countries, and owing money in euros they will be able to repay money in euros. Germany is in a better position to absorb the consequences of a breakup in that fashion.

End Transcript

Better if Germany Leaves

I am in total agreement with the unknown questioner regarding the political reality: Germany will not pony up the cash, nor the banking union and fiscal unions required to make the euro work.

On November 9, 2011 in Breakup Inevitable, but How? I offered the following comments.

Eurozone Breakup Inevitable, But How?

Continue Here

Howard Marks: “In The End, The Devil Always Wins”

Courtesy of ZeroHedge. View original post here.

In the follwoing interview with Swiss Finanz und Wirtschaft, Howard Marks, chairman of the U.S. investment firm Oaktree Capital, sees more room to run for stocks. But at the same time he warns that from now on, a higher level of caution is appropriate. The bulk of the content should be largely well-known to those who follow the long-term distressed investor, but it does have such pearls as the following:

If I ask you what’s the risk in investing, you would answer the risk of losing money. But there actually are two risks in investing: One is to lose money and the other is to miss opportunity. You can eliminate either one, but you can’t eliminate both at the same time. So the question is how you’re going to position yourself versus these two risks: straight down the middle, more aggressive or more defensive. I think of it like a comedy movie where a guy is considering some activity. On his right shoulder is sitting an angel in a white robe. He says: «No, don’t do it! It’s not prudent, it’s not a good idea, it’s not proper and you’ll get in trouble». On the other shoulder is the devil in a red robe with his pitchfork. He whispers: «Do it, you’ll get rich». In the end, the devil usually wins. Caution, maturity and doing the right thing are old-fashioned ideas. And when they do battle against the desire to get rich, other than in panic times the desire to get rich usually wins. That’s why bubbles are created and frauds like Bernie Madoff get money.

Full interview below:

The heat in the equity markets is back on. This week, the S&P 500 reached a new all-time high and investors are gaining confidence again. Howard Marks thinks that stocks have more room to run. But at the same time he warns that from now on, a higher level of caution is appropriate.

As reason for his optimism about stocks Marks cites the growing popularity of the equity market and still pretty fair valuations. Nevertheless, he’s uncomfortable with the super easy monetary policy of central banks like the Federal Reserve which forces conservative investors like him to take on more risk.

Mr. Marks, next week Wall Street will celebrate the fifth anniversary of the end of the equity bear market. What are your thoughts when you’re looking back to the dark days of the financial crisis?

Because people play an important role in determining the course of the financial markets, stock prices move like a manic-depressive. Of course, there were some severe fundamental problems in the years 2008 and 2009: The economy was bad, capital markets were closed, and Lehman Brothers and other financials firms went bankrupt. But most people exaggerated that into a belief that the world was ending. In line with that, asset prices were ridiculously low. Therefore, five years ago the key to making money was to have money to spend and the nerve to spend it. In other words: To do the exact opposite of what most people were doing erroneously at that time.

And what’s your take on the stock market today, half a decade later?

Around the beginning 0f 2012 it was clear that a lot of recovery from the crisis had taken place. The economy, investor psychology and the price of credit investments had recovered, and pro risk behavior had started to return to the markets. Because of that, our mantra at Oaktree Capital for the last few years has been: «move forward, but with caution». Although a lot has changed since then I think it’s still appropriate to keep the same mantra. Today, things are not cheap anymore.  Rather I would describe the price of most assets as being on the high side of fair. We’re not in the low of the crisis like five years ago. But similarly, I don’t think we’re in a bubble.

This week, the S&P 500 printed a new intraday all-time high. What indicators are you looking at to feel the pulse of the market?

The easy thing to look at is the P/E ratio on the S&P 500. The post war norm is about 16 and the lowest point I’ve ever seen was in the late seventies when it got down to 7. At the beginning of 2012 it was around 11 which was very cheap too. During the financial crisis stock prices went down and then they came back up somewhat. At the same time, company profits moved ahead sharply, which reduced the ratio of price to earnings. So equities were extremely cheap, as I wrote in March 2012 in one of my memos called «Déjà Vu All Over Again». But we’re not there anymore.

So where do we stand now?

Let’s think about a pendulum: It swings from too rich to too cheap, but it never swings halfway and stops. And it never swings halfway and goes back to where it came from. As stocks do better, more people jump on board. From 1960 to the late nineties everybody thought that owning stocks was the way to get rich with no risk. Stocks, which had always gone up 10% a year on average, went up 20% on average in the nineties. Then, from 2000 to 2012 with the burst of the dot-com bubble and later the financial crisis, people fell out of love with stocks, causing them to get too cheap. Now people are in the process of falling in love again. And every year that stocks do well wins a few more converts until eventually the last person jumps on board. And that’s the top of the upswing. But I don’t think that craze is back now. That’s a reason for optimism, because that means more affection can develop.

What are the risks investors should be aware of as this bull market goes on?

If I ask you what’s the risk in investing, you would answer the risk of losing money. But there actually are two risks in investing: One is to lose money and the other is to miss opportunity. You can eliminate either one, but you can’t eliminate both at the same time. So the question is how you’re going to position yourself versus these two risks: straight down the middle, more aggressive or more defensive. I think of it like a comedy movie where a guy is considering some activity. On his right shoulder is sitting an angel in a white robe. He says: «No, don’t do it! It’s not prudent, it’s not a good idea, it’s not proper and you’ll get in trouble». On the other shoulder is the devil in a red robe with his pitchfork. He whispers: «Do it, you’ll get rich». In the end, the devil usually wins. Caution, maturity and doing the right thing are old-fashioned ideas. And when they do battle against the desire to get rich, other than in panic times the desire to get rich usually wins. That’s why bubbles are created and frauds like Bernie Madoff get money.

How do you avoid getting trapped by the devil?

I’ve been in this business for over forty-five years now, so I’ve had a lot of experience.  In addition, I am not a very emotional person. In fact, almost all the great investors I know are unemotional. If you’re emotional then you’ll buy at the top when everybody is euphoric and prices are high. Also, you’ll sell at the bottom when everybody is depressed and prices are low. You’ll be like everybody else and you will always do the wrong thing at the extremes. Therefore, unemotionalism is one of the most important criteria for being a successful investor. And if you can’t be unemotional you should not invest your own money, period. Most great investors practice something called contrarianism. It consists of doing the right thing at the extremes which is the contrary of what everybody else is doing. So unemtionalism is one of the basic requirements for contrarianism.

For what warning flags should investors watch out now?

There are two main things to watch: valuation and behavior. A great thing about investing is that you have historic valuation standards. You should be aware of them, but you shouldn’t be a slave to them.  You can compare the current P/E ratio to historic standards and see that the current P/E ratio is about fair relative to history. So valuations are moderate to a little expensive in most areas. Looking at investor behavior, you can ask yourself: Is everybody at the club, on the train or in the office talking about stocks? Is everybody having fun and making easy money? Is everybody saying «even though the market has doubled, I’m going to put more money in»? Is every deal sold out? Is every fund sold out? In other words: Is the party rolling? And if that’s the case, then you should be very cautious. It’s like Warren Buffett says in one of my favorite quotes: «The less prudence with which others conduct their affairs, the greater the prudence with which we must conduct our own affairs».

How about the super easy monetary policy? With interest rates at almost zero percent and large-scale bond buying programs like QE3, the Federal Reserve and other central banks are encouraging such a risk-seeking behavior.

The availability of cheap money in too-large quantities is behind many of the excesses in the financial markets. If you look around, what do these places have in common: the southwest of the United States, China, Ireland and Spain? Too much building! In all of these jurisdictions the overbuilding occurred because money was too easy. There’s no question that the easy money policy of the Fed has dangerous aspects. On the other hand, the action of the central banks in reducing interest rates during the crisis was absolutely necessary. If they hadn’t done it we would have gotten into even bigger trouble. But that doesn’t mean that there aren’t some negative consequences. Every governmental action has consequences. Even if the main policy is correct there are side effects, like with medicine.

What are those side effects?

One of the negative consequences is that money is has been cheap. In short, we don’t have a free market in money. The barrower has been subsidized and the investor or saver has been penalized. If you’re a company with a big loan outstanding your interest cost has gone down. On the other hand, if you’re a pensioner living on your savings, your income has shrunk. The other important threat is that because central banks pushed interest rates so low, people moved out the risk curve to get the returns they needed. People used to get 6 or 7% from U.S. Treasuries. Now they have to move to riskier investments like high yield bonds to get the same return.

A field where Oaktree Capital has great expertise is credit investing. How hard is it to still find attractive investments in the credit space?

For bargain hunters like us it’s a challenging time. We like it better in the crisis, when everybody thinks the sky is falling and everybody is willing to sell things for a fraction of what we think they’re worth. Today, there is no panic and no worry. Everybody can refinance. There is little distress. The default rate on high yield bonds has been very low for the last four years. So it is slow going for us. But we’re harvesting. The assets we own have become very valuable because we bought them in a time of worry and now we can sell them at highly appreciated prices. And although it’s not easy there are still certain areas where we are investing: For example real estate, Europe and shipping.

And what’s your outlook for the bond market?

I remember very well one loan that I had in the early eighties when the interest rate reached more than 22%. So over the last thirty three years, bond investing has been very successful with interest rates declining. But this can’t go on much further because interest rates are down to almost zero percent now. The one thing I am pretty sure of is that interest rates can’t go below zero. It’s not impossible to have negative interest rates, by the way, but it’s unlikely. The other point is that the conditions of the markets always change and we don’t always know how they’re going to change. Most people agree that there is a very high chance that the Fed will continue to taper its bond purchases. But we don’t know what the effect will be. In other words: Everybody thinks tapering will make interest rates rise. But maybe interest rates already have risen in anticipation of the tapering, so that the event of the tapering itself will not cause a rise. One thing you can never be sure of in the investment world is «if A, then B».  Processes and linkages are not always predictable,

Even if the Fed is scaling down QE3 gradually it will continue with a very easy monetary policy. And since central banks around the globe keep on printing cheap money, many investors are fascinated by gold. What are your thoughts on the archaic metal?

At the end of 2010 I put out a memo about gold called «All That Glitters». My conclusion was that there is no intelligent way to invest in gold. Here’s what I mean: A professional tries to invest by looking at a company and figuring out how much money it makes and how much money it is going to make in the future. Then he figures out what this company is worth and compares the current price to that value. But you can’t figure out what gold is worth. It doesn’t really have much practical use and it doesn’t produce income. You might say: Gold (Gold 1321.9 -0.71%) is a good buy because it’s a store of value, it protects against inflation, and it gives comfort in times of panic. So you argue that’s a good reason to buy gold today at $1300. But the trouble is that all those things were also truth when it was at $1900, and the person who bought it there has lost a third of his money. Therefore, you can’t invest intelligently in gold. There is no way to translate those virtues into a dollar figure. By the way: If you take the word «gold» and you take away the letter «l» then you have god. And it’s the same analysis: Either you believe in it or you don’t.

That leads us to an essential philosophical question. What’s the role of luck in investing?

Luck is extremely important. Skill, hard work and perseverance are all very important. But you need luck, too. Sure, you can maximize your chances of success by doing good analysis and making good decisions. But that doesn’t mean they’re going to work all the time, since the world is not an orderly place and randomness plays an important part. One of the first things I learned at university is that you can’t tell from the outcome whether a decision was a good investment decision or a bad investment decision because of the role of random and luck.

So how can we even tell who’s really a good investor and who’s not?

I always like to point out that nobody does their own dental work, or their medical work, or their own legal work. Therefore, in investing, like in any other field, you should hire a skilled professional because it’s not easy. Let me correct that: it’s easy if you want to do average. You can buy an index fund or a portfolio of average mutual funds and you get average results. But success in investing for me is not to be average; it’s to be above average. That’s the part that is hard. Investing is a mental activity in which you have to double think at what I call the second level, since your job is to out-think the others and most things are counterintuitive. That’s not true in a physical activity like bridge building or tennis, for example, in which you don’t have that level of psychological and emotional complexity.

But then again, to win a grand slam tennis tournament like Wimbledon it’s also not enough to be average.

First of all, unlike in investing, there’s not that much luck in tennis. A pro like Roger Federer knows exactly where the ball is going to go when he moves his shoulder, his elbow, his hip and his legs in a certain way. But in investing that’s not true. Outcomes aren’t fully predictable or dependable. And there’s more: When Federer plays he tries to hit winners. If he does not hit a winner and gives an easy return, Nadal will stuff it down his throat. But when you and I play together, I don’t have to try to hit winners. I can beat you by not hitting losers. I’m just going to keep the ball in play. I put it every time back knowing that if I can do it twenty times you’re finally going to hit the ball into the net or off the court. So I don’t have to hit a winner. I only have to avoid hitting a loser. And that’s our motto at Oaktree Capital, too. We want to make a large number of competent investments and have none of them to blow up. And if we avoid the losers, the winners take care of themselves.

Is that also true for your personal investment portfolio?

I am a conservative investor. My ownership of Oaktree Capital and the income I derive from Oaktree’s success and my investments in Oaktree funds is very substantial. So I’ve never felt the need to press up my risk exposure. I am not one of these people who feel that every dollar has to be fully employed at maximum return every minute. I derive a lot of comfort from having liquidity and a dependable portfolio. Before the crisis, I used Treasuries for virtually all my money that was not invested in Oaktree. That allowed me to get a return of around 6% with total safety. Today, if I want to invest in Treasuries with one to five year maturities I only get 1%. That’s not enough because after taxes and inflation I lose money. So the answer is that I have increased my active investments. I’m still not maximally aggressive. By necessity, like everybody else in the world, I’ve moved out the risk curve – but in my case with caution.

Picture by Rex Diablo at Wikimedia. 


Why the Periphery Is Crumbling: The Spoils System Is Cracking

Why the Periphery Is Crumbling: The Spoils System Is Cracking

Courtesy of Charles Hugh Smith of Of Two Minds

Instability starts on the periphery and moves into the core.

While it is clear that the instability in periphery nations is arising from dynamics unique to each nation, there is one unifying causal factor: the spoils system in each nation is breaking down.

Every nation-state, from brutal dictatorships to nominal democracies, ultimately depends on a spoils system that provides the various factions, classes, etc., with sufficient material and status benefits to accept the Status Quo arrangement.

The more a regime relies on oppression for its legitimacy (for example, North Korea or Saddam’s Iraq), the greater its vulnerability to erosion in the spoils system, which naturally favor the military and the regime’s Elites.

In broad brush, the spoils available for distribution are the surplus generated by the national economy. In the case of North Korea, this surplus stems from extortion (of donations from other nations), satrapy (free oil from China) and illicit activities (arms sales and counterfeiting). A common source of surplus is oil (Venezuela, Iraq, Iran) or some other desirable commodity.

The vast majority of surpluses outside oil exporting nations have been generated by three factors: cheap energy, rising productivity and the expansion of credit. If we examine periods of rapid expansion and generalized prosperity, we find these three factors were active: cheap energy, rising productivity and ample credit.

Just look at Europe and the U.S. in the 1950s and 60s, Japan in the 1960s and 70s, and China in the 1980s and 90s for examples.

Any reversal in these factors reduces surplus and the spoils being distributed. Sharply higher energy costs crimp profits and cause recessions, stagnating productivity leads to near-zero growth and institutional/state sclerosis and credit contraction leads to recession and the destruction of malinvestments.

Since ruling Elites are by definition constantly picking winners and losers, any Status Quo operated by Elites is systematically malinvesting on a gargantuan scale. This is the ontological imperative of any Elite: skim as much of the national surplus as possible and funnel it to cronies and loyal toadies. The prudent Elites (and imprudent Elites don’t last long–the spoils system is quite Darwinian) set aside enough surplus to distribute as spoils, effectively buying the complicity of key sectors, classes, factions, etc.

Thus the default policy of any ruling Elite is bread and circuses: supply the potentially disruptive masses with food and entertainment, and they’ll continue their grudging support of whatever arrangement is supplying the bread and circuses.

Any mob that appears threatening can be dissipated with a “whiff of grapeshot.”

In the U.S., the spoils system is almost unlimited: corporate welfare for capital, food stamps and SSI disability for the lumpenproletariat, big-bucks jobs as water-carriers for the Elites for technocrats in the State, finance, think tanks, elite universities and Corporate America sectors, a variety of quasi-secure lower-level positions as enforcers, lackeys, apparatchiks and factotums and a smattering of tax subsidies (mortgage interest deduction, etc.) to placate what’s left of the non-state-dependent middle class.

The spoils system is not only the foundation of every Elites’ political legitimacy, it is the thin layer of plaster that covers all the longstanding ethnic, regional, linguistic, religious and political fault lines that run beneath current nation-state arrangements.

As noted in yesterday’s entry Ukraine: A Deep State Analysis, numerous national borders were drawn after World War II (1945) with little regard for historical divisions between various groups or preceding borders.

Entire nations were penciled into existence by Imperial diktat in complete disregard for existing historical groups–Iraq and Syria being just two examples of many.

As long as the stick of repression and the carrot of the spoils system were sufficiently persuasive, the tectonic plates beneath the regime were masked. But once the spoils system and the machinery of suppression crack, the old rivalries arise anew.

The spoils system can crack for two reasons: either the national surplus declines so there simply isn’t enough spoils left to keep everyone placated, or the spoils diversion to the Elites and their cronies exceeds the tipping point of legitimacy.

Greece and Venezuela are examples of the first dynamic, and Ukraine is an example of the second dynamic. Greece essentially funded its vast spoils distribution system with borrowed money. When the regime’s free-money machine finally broke, the spoils system crashed along with the legitimacy of the Status Quo.

Venezuela is suffering a similar crash, based not on a withdrawal of credit but on the current Elites’ destruction of the nation’s oil industry and what was left of its productive private economy.

In Ukraine, the plundering of the national surplus by oligarchic Elites finally exceeded the populace’s threshold of legitimacy, and once the armed forces and police refused to murder their cousins, brothers, nieces and nephews in the streets, the Status Quo arrangement collapsed.

Now that the spoils system has crumbled, all the historical tectonics and fault lines are emerging in full force. the same can be said of Iraq and many other inherently unstable nation-states/regimes.

Why is the periphery crumbling? It’s simple: the conditions that enabled rising national surpluses and the distribution of spoils is breaking down for three reasons:

1. Energy is no longer cheap (compared to past prices)

2. The low-hanging fruit of higher productivity has all been plucked

3. The free-money flood of cheap, limitless credit is drying up

As regimes find surplus and credit are both contracting, their ability to placate every key group with spoils is also declining, and the conflicts between them can no longer be patched over with bribery or brutality.

Instability starts on the periphery and moves into the core. I have covered this in depth a number of times:

Instability Start on the Margins (October 31, 2013)

The Core-Periphery Model (June 11, 2013)

EU Leaders Throw Europe a Plutonium Life Preserver (October 27, 2011)

Everywhere, the instability from a failing spoils system is seeping from the periphery into the core: the E.U., the U.S., China and India. Two Powder Kegs Ready to Blow: China & India (January 23, 2014)

This erosion of the spoils system has a peculiar characteristic: once the old spoils system cracks and collapses, it cannot be put back together. A new arrangement arises, despite the best self-serving efforts of the current Elites. 

Picture credit: UC Davis

Ukraine Limits Withdrawals to 15,000 Hryvnia per Day (about $1,500); Hryvnia Up 14%

Courtesy of Mish.

Hoping to halt or slow capital flight and stop the run on banks, the Ukraine central bank limited foreign currency withdrawals to 15,000 Hryvnia per day as noted by FxStreet earlier today.

Hryvnia vs. US Dollar

Taking into account today’s 14% rise, 15,000 Hryvnia is about $1,556.
Capital controls and/or other interventions seem to have stopped the slide in Hryvnia. For how long?

Mike “Mish” Shedlock

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Welcome to the Currency War, Part 12: Bankrupt Rome and Soaring Euro-Bonds

Courtesy of John Rubino.

Only in a world totally corrupted by easy money could the following two things be announced on the same day. First:

European Bonds Surge as ECB Stimulus Confines Crisis to Memory

Yields on the euro area’s government bonds have never been lower as the potential for extended European Central Bank stimulus helps exorcise memories of the region’s sovereign debt crisis.

The bond-market rally is broad based, encompassing both core economies such asFrance and also peripheral markets including Greece, which was pushed to the brink of exiting the currency bloc during the region’s financial woes. Another of those nations, Portugal, took a step toward exiting an international bailout program today as it bought back bonds, while Italy, supported in the turmoil by ECB bond purchases, sold five-year notes at a record-low rate.

“Investors are starting to look at the non-core European bond markets as a viable investment alternative again,” said Jussi Hiljanen, head of fixed-income research at SEB AB inStockholm. “Further ECB actions have the potential to maintain the tightening bias on those spreads,” he said, referring to the yield gap between core nations and the periphery.

The average yield to maturity on euro-area bonds fell to a record 1.6343 percent yesterday, according to Bank of America Merrill Lynch indexes. It peaked at more than 6 percent in 2011, the data show.

Italy’s 10-year yield fell seven basis points to 3.47 percent after touching 3.46 percent, a level not seen since January 2006. Portugal’s 10-year yield dropped four basis points to 4.81 percent and touched 4.78 percent, the least since June 2010, while Ireland’s two-year note yield and Spain’s five-year rates dropped to records.

Then, at about the same time:

Rome days away from bankruptcy

Eternal city warns it will go bust for the first time since it was destroyed by Nero

Matteo Renzi, the Italian prime minister, came under pressure on Thursday as the city of Rome was on the brink of bankruptcy after parliament threw out a bill that would have injected fresh funding.

Ignazio Marino, Rome mayor, said city services like public transport would come to a halt and that he would not be a “Nero” – the Roman emperor who, legend has it, strummed his lyre as the city burnt to the ground.

Marino said that Renzi, a centre-left leader and former mayor of Florence who was only confirmed by parliament this week, had promised to adopt urgent measures to help the Italian capital at a cabinet meeting on Friday.

The newly-elected mayor faces a budget deficit of 816 million euros ($1.1 billion) and the city could be placed under administration if he does not manage to close the gap with measures such as cutting public services.

“Rome has wasted money for decades. I don’t want to spend another euro that is not budgeted,” Marino said, following criticism from the Northern League opposition party which helped shoot down the bill for Rome in parliament.

The draft law would have included funding for Rome from the central government budget as a compensation for the extra costs it faces because of its role as the capital including tourism traffic and national demonstrations.

Other cash-strapped cities complained it was unfair. But Marino warned there could be dire consequences. “We’re not going to block the city but the city will come to a standstill. It will block itself if I do not have the tools for making budget decisions and right now I cannot allocate any money,” he told the SkyTG24 news channel.

Marino said that buses may have to stop running as soon as Sunday because he only had 10 percent of the money required to pay for fuel in March.

He added: “With the money that we have in the budget right now, I can do repairs on each road in Rome every 52 years. That’s not really maintenance.”

How is it that Italy is able to borrow money at low and falling rates – which indicates that borrowers are confident of its ability to pay its bills – while its major city, far more important to that country than New York or Los Angeles is to the US, slides into bankruptcy?

The answer is that Rome is irrelevant in comparison with two other facts. First, Europe is slipping into deflation, which generally leads to lower bond yields. Second, the European Central Bank is virtually guaranteed to respond to fact number one with quantitative easing on a vast scale.

So the bond markets, far from rallying on the expectation of a eurozone recovery, are rising in anticipation of the opposite: a new round of recession/deflation/instability that forces the abandonment of even the pretense of austerity and the adoption of aggressively easy money.

In this scenario, a Roman bankruptcy is actually a good thing because it pushes the ECB, Bundesbank, Bank of Italy and the other relevant monetary entities to stop dithering and start monetizing debt in earnest. Once it gets going, the goal of the program will be to refinance everyone’s debt at extremely low rates, push down the euro’s exchange rate versus the dollar, yen and yuan, and shift the currency war front from Europe to the rest of the world. The race to the bottom continues.

The rest of this series is available here.

Visit John’s Dollar Collapse blog here >

Fukushima Cover Up: A Play in Two Acts

Courtesy of George Washington's Blog

Act 1:  Japanese Prime Minister Had to Fly In to Fukushima In the Middle of the Night to Get the Scoop from Low-Level Nuclear Workers … Because Tepco Wouldn’t Tell Him the Truth

In this 27-second video, Amy Goodman summarizes her interview with Japanese Prime Minister Naoto Kan:

We just came from Tokyo. We broadcast for three days from Japan. And we’re going to play the interview I did with the former prime minister, the one in charge at the time [of the Fukushima disaster], Naoto Kan. He said it was extremely difficult to get a straight answer from TEPCO, the Tokyo Electric Power Company, that ran the plants, and he had to fly in. He figured the only place he could get a straight, nonpolitical answer—he flew in the middle of the night to the plant to talk to the workers to figure out whether he had to evacuate 50 million people in Tokyo.


This is not the first time Tepco has been less than honest:

  • Tepco admitted that it’s known for 2 years that massive amounts of radioactive water are leaking into the groundwater and Pacific Ocean, but covered it up
  • Tepco falsely claimed that all of the radiation was somehow contained in the harbor right outside the nuclear plants

Act 2: U.S. Nuclear Authorities Were Extremely Worried About West Coast Getting Hit By Fukushima Radiation … But Publicly Said It Was Safe

Nuclear expert Ed Lyman – chief scientist at the Union of Concerned Scientists – said:

While the U.S. government was telling the American people there was nothing to fear from Fukushima and that U.S. plants aren’t vulnerable to the same problems, internally, they were—there was a much different story. So we’ve learned from a lot of Freedom of Information Act documents that the Nuclear Regulatory Commission and the White House were actually very concerned about the potential impact of radiation from Fukushima affecting not only Americans in Tokyo, which was more than a hundred miles away from the plant, but also Americans on the West Coast. And they were furiously running calculations to try to figure out how bad it could get. But there was no sense of this in what they were telling the public.


Indeed, Seattle residents were exposed to dangerous radioactive "hot particles" because the government didn't warn residents:

This is similar to the Japanese government withholding radiation plume data from evacuating Fukushima residents … which caused them to evacuate to areas of very high radiation.

EneNews rounds up details on the freedom of information act information.

Originally published at George Washington's Blog: Japanese Prime Minister Had to Fly In to Fukushima In the Middle of the Night to Get the Scoop from Low-Level Nuclear Workers … Because Tepco Wouldn’t Tell Him the Truth.

Ukraine Imposes Capital Controls, Limits Foreign Currency Withdrawals

Courtesy of ZeroHedge. View original post here.

Submitted by Tyler Durden.

Yesterday we reported that as part of the Ukrainian central bank's plan to bailout the nation's largely insolvent private banks, it would provide any needed funding but only "if they will remain under open control of the National Bank of Ukraine." And since the new CB head Stepan Kubiv's allegiance to Europe were already well-known, this was merely a quick and efficient way of providing Europe with all the banking details including asset holdings of the local population. Today, the annexation of the country's banking system by a "benevolent" Europe is complete.

Itar-Tass reports that Ukraine's national bank has imposed temporary limits to withdraw money from foreign currency deposits to sums equivalent to no more than 15,000 hryvnias (about $1,500) a day, National Bank Chief Stepan Kubiv told a press conference. Or, as the citizens of Cyprus call it – capital controls.

Why is Ukraine doing this? Because when your currency is crashing at a record pace to unseen lows, what is the best way to limit FX transactions? Simple – just minimize the amount of foreign currency that can be in circulation.

Which is also why the the central bank's capital controls do not touch local currency: there is more than enough of that in circulation since after all Ukraine has its own currency and can print it in infinite amounts: "For hryvnia deposits you may take as much as a million or two. Banks have liquidity," Kubiv said.

Then there was the token propaganda:

The chief banker also noted that the situation on Ukraine’s currency market was under control. "The exchange rate may move in one direction and the opposite. There are just emotions and misinformation on the financial market," he noted.

He assured the national bank would toughly stop violators of the currency law. For example, inspectors were sent to eight banks that had engaged in speculation, he said.

To summarize: first banks abdicate their control to a pro-European central bank, and now the citizens face their first (of many) capital controls which incidentally will simply aggravate the fund outflow situation even more, leading to an even faster drop in foreign reserves.

Finally comes the inflation. Wait until the people start rioting – think Egypt – when the economy collapses and a loaf of bread costs its wheelbarrow equivalent in Hryvnias. Just how fast will the countercoup in Ukraine take place then? Recall, in Egypt it was just over a year and a half…

PBS Frontline: Secrets of The Vatican

Courtesy of Larry Doyle.

I could not possibly recommend more strongly the viewing of this recently released documentary on PBS Frontline. The issues addressed are almost too numerous to properly categorize, but at the core is scandal and corruption at the highest level of the Catholic Church.

I will pray for Pope Francis that he is successful in cleansing the church of those deeply ensconced within it who have engaged in corruptible practices.

The comments attached to this documentary are also worth reviewing. I found this one to be of particular interest:

A remarkable program about the Vatican. We need a similar one on Wall Street, the US Congress and the United Nations.

I thought of INTOXICATION stemming from SEX, MONEY, SUBSTANCES, POWER, RELIGION and KNOWLEDGE. It would be a mistake to see all that this great Television exposed without some introspection on intoxication and what we encounter before a mirror.

The documentary runs for about 80 minutes. I hope those navigating these parts will find the time to view it and share it.

Troubling Increase in Initial Unemployment Claims A Bad Omen For Stock Prices

Courtesy of Lee Adler of the Wall Street Examiner

For the first time in 2014, initial unemployment claims were higher than the same week a year ago. The difference was slight, but just the fact that they were not lower than last year is troubling because it suggests that the improving trend may be losing steam.

The seasonally adjusted headline number for initial unemployment claims came in above consensus expectations at 348,000 for the week ended February 22. Wall Street economists had guesstimated 335,000. Actual filings totaled 310,816 (see Note below) which was up 0.1% from the same week a year ago. This was near the top end of the range year to year change over the past 4 years. In addition, the short term trend since the beginning of the year has been toward less favorable comparisons.

The Fed’s timing on changing policy is, as usual, impeccable. It is declaring victory and going home just as its abject defeat on the efficacy of QE in increasing employment may be about to become apparent.

Initial Unemployment Claims - Click to enlarge

Initial Unemployment Claims – Click to enlarge

The DOL reported that “The advance number of actual initial claims under state programs, unadjusted, totaled 310,816 in the week ending February 22, a decrease of 10,598 from the previous week. There were 310,389 initial claims in the comparable week in 2013.”The year over year increase of 0.1% was the second time in 3 weeks that the annual rate of change was less than 1%. The central tendency of the trend over the previous 3 years had been around -10%. Since the second week of this year the decline has never been greater than 8.6%.The week to week decrease of -10,598 was less than the drop of 40,637 for this week of February last year. It was also worse than the 10 year average of a decline of -15,352 for the same week. One bad week does not a trend make, but this has been trending the wrong way for six weeks now.  


Initial Claims and Stock Prices - Click to enlarge

Initial Claims and Stock Prices – Click to enlarge


Stock prices and initial unemployment claims have historically had a strong inverse correlation. A negative divergence developed in the final burst of the last bubble in 2007, with the trend of claims stalling from 2006 through 2007 while stock prices entered their final blowoff. The flat year to year trend in claims could mean that the trend is moving in the direction of developing a negative divergence versus stock prices. At the very least, it’s clear that stocks have “bubbled off” over the past 15 months. If the improvement in initial jobless claims stops, it would suggest that that the institutional mania for equities is in its final stages. 

Note: The headline number is a seasonally adjusted, fictional number. The Department of Labor also reports the actual number of filings which the 50 states count and send to it weekly, absent a few interstate claims which show up in the following weekly revision of the advance figure released each week for the week before. Those upward revisions are usually in the 1,000 to 4,000 range, which isn’t material in the big picture, but in this case it will make a bad number even worse, perhaps turning the year to year trend negative.

Get regular updates on the machinations of the Fed, Treasury, Primary Dealers and foreign central banks in the US market, in the Fed Report in the Professional Edition, Money Liquidity, and Real Estate Package. Click this link to try WSE’s Professional Edition risk free for 30 days!

Copyright © 2012 The Wall Street Examiner. All Rights Reserved. 

Eurozone in Deflation; Monetarist Mouthpieces Will Scream

Courtesy of Mish.

Forget all the talk about CPI or as they call it in Europe HIPC (harmonized index of consumer prices) floating just under 1%.

The true measure of inflation is credit expansion. And for the second month, credit contracted in the Eurozone.

Reuters reports Euro zone lending contraction compounds ECB headache.

Lending to households and firms in the euro zone fell again in January and money supply growth remained subdued, adding to pressure on the European Central Bank to take action next week to support the economy.

The ECB has cut interest rates to a record low, pumped extra liquidity into the banking system and announced a fresh government bond purchase program, but the measures have so far not managed to unclog lending to the real economy.

Euro zone inflation is also running at only 0.8 percent – far below the ECB’s target of just under 2 percent.

Loans to the private sector fell by 2.2 percent in January from the same month a year earlier, ECB data released on Thursday showed. That compared to a contraction of 2.3 percent in December.

Euro zone M3 money supply – a more general measure of cash in the economy – grew at an annual pace of 1.2 percent, picking up slightly from 1.0 percent in December.

Monetarist Mouthpieces Will Scream

Credit contraction news will have all the monetarist mouthpieces screaming yet again.

Ignore them.

Stepping on the gas pedal with QE will not do a damn thing except create an even bigger asset bubble in European equities.

When bubbles pop – and they always do – the only thing monetarists will have to offer is still more monetary stimulus….

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Facebook and Tesla Are Winning Wall Street Because They Make the Biggest Bets

Facebook and Tesla Are Winning Wall Street Because They Make the Biggest Bets


This week, shares in Google, Facebook, and Tesla reached an all-time high on Wall Street, helping push the NASDAQ to its tallest peak since the dot-com crash 14 years ago. These three tech outfits are very different operations, but right now, they have at least one thing in common: each has taken a strong stance on unproven tech. On Wall Street, it seems, risk is in. The question is whether such faith in Silicon Valley’s aggressive optimism will ultimately be rewarded.

Facebook just spent $19 billion on ad-free messaging service WhatsApp. Google is buying up robotics companies and artificial intelligence startups — as well as the smart thermostat maker Nest — in a bid to become the digital mediator not just on computing devices but across the rest of the physical world. And Tesla is positioning itself not as a car company, but an energy company that happens to make cars. In the past, bankers in bow ties and suspenders may have eyed extreme risk with skepticism, but today’s Wall Street is embracing the sunny confidence of Silicon Valley “disruption.”

During the dot-com bubble, investors threw money at everything on the internet, because no one knew the value of any of it. The medium was just too new. But that’s not what’s happening here. Two decades after the web reached the mainstream, the contours of our tech future have become clearer. We have a better idea of which players have the greatest influence over the shape of things to come. This winnowing seems to have inspired a new attitude among investors. These days, the market isn’t betting on everything. It’s not even betting on Apple. But it is making big bets on businesses that are themselves betting big.

Facebook Escapes Friendster’s Fate

Ironically, Facebook’s initial opportunity to define the future came because the company that got there first couldn’t follow through. Friendster launched in 2002, two years before Facebook, and it showed early signs of owning the concept of online “friending.” But Facebook’s superior execution, combined with Friendster’s missteps, allowed Mark Zuckerberg and his band of accidental billionaires to become the internet’s default social network.

Keep reading Facebook and Tesla Are Winning Wall Street Because They Make the Biggest Bets | Wired Business |

Inside Ukraine: Mish Reader Who Speaks Ukrainian and Russian Challenges Western Media View of Events

Courtesy of Mish.

I received an interesting email regarding Ukraine from reader Jacob Dreizin, a US citizen who speaks both Russian and Ukrainian.

Jacob comments on media bias and offers the “full scoop” on Ukraine.

First, let’s take a look at events that happened earlier today.

Pro-Russia Gunman Seize Crimea Parliament

Bloomberg reports Gunmen Seize Crimea Parliament as Ukraine Backs New Premier.

Gunmen occupied the parliament in Ukraine’s Crimea region as lawmakers in the capital approved a new cabinet after last week’s ouster of Viktor Yanukovych.

About 120 trained and well-armed men took over the parliament and government buildings in Simferopol, according to Serhiy Kunitsyn, a lawmaker for former boxing champion Vitali Klitschko’s UDAR party. They raised the Russian flag.

Fistfights broke out yesterday near Crimea’s parliament as hundreds of demonstrators demanded a referendum on breaking the region off from Ukraine and joining Russia. They were met by several thousand Tatars, chanting “Crimea isn’t Russia!”

The proposed Crimean referendum has no legal basis, Unian said, citing the Central Election Committee. The Constitution requires a nationwide referendum to change territorial status.

Crimea’s Parliament Seeks Referendum on Region’s Future

The Financial Times reports Crimea’s Parliament Calls for Referendum on Region’s Future

Ukraine plunged further into crisis on Thursday after unidentified pro-Russian gunmen seized Crimea’s regional parliament, prompting legislators there to call a referendum on the autonomous peninsula’s future.

The raid in Simferopol, Crimea’s capital, intensified east-west tensions over Ukraine. Fears mounted that separatists could prevail in the largely pro-Russian peninsula after a pro-western leadership assumed power in Kiev after last week’s toppling of president Viktor Yanukovich.

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Everything is Awesome!

Didn't you know?

Everything is Awesome!

Courtesy of  

lego movie

You know what the twentysomethings in Manhattan are into these days? Drunk Brunch. True story. They go out on Saturday night to pre-game for the next morning, wake up half-drunk then start banging vodka drinks at 10 am while a DJ blasts oonce-oonce music and brioche french toast comes flying out of the restaurant’s kitchen. Smashed on a Sunday, dancing on tables in broad daylight, licking maple syrup off each other’s necks.

I’m not even talking about Brooklyn, I’m talking about the WASPs on the Upper East Side for god’s sake. It started a year or so ago and now it’s like THEE thing.

LAVO Champagne Brunch

F*ckin’ millennials.

This is bull market behavior, if these kids were worried about getting jobs in 2009 and keeping them in 2011, well, not so much now.

Corporate profits are smashing records every quarter. And banks – the BIG banks – the “Systemic Six” justearned $76 billion in profits last year, just $6 billion shy of their credit bubble era peak. We’re their loyal subjects again, they won.

There’s a biotech bubble. It’s breathtaking. 11 of this year’s 14 best performing Russell 2000 stocks are biotechs, 7 of the top 8. The biotech index is up 20% since New Year’s Eve and 70% over the last 12 months. I’m not complaining. I’d rather see a biotech bubble than a social media bubble – the former cures illness while the latter causes it.

Speaking of social media – I told Mark Zuckerberg that my daughter’s lemonade stand was “the next Facebook” and he bought her out for $24 billion. So I’m basically retired now – again, no complaints, but how many “next Facebooks” can he afford to buy at these levels? Hackers everywhere are building stupid shit to sell to him as we speak. Good for them.

My friend Helene Meisler noted that “users” are to 2014 what “eyeballs” were to 1999. History doesn’t repeat and it doesn’t necessarily rhyme. It Retweets. It’s hilarious what we’re valuing “users” at these days, as if there’s some permanence to the fact that someone downloaded and app and uploaded a few dick pics. I’m trying to convince my dentist to call his patients “users” and then sell his practice to Sequoia or Union Square Ventures.

Tesla’s announced its building a Giggedy-factory or some such thing. Elon Musk should’ve fake-limped out of the Wonka Factory with a cane to make the announcement. The Street is going batshit over it. Look at this:

Screen Shot 2014-02-27 at 9.46.07 AM

Morgan Stanley’s analyst went full E-tard this week. He’s calling for a Utopian Society (his words, not mine) driven by, I kid you not, electric batteries. I think that’s a little far-fetched but just in case I’ve built a shrine to the Energizer Bunny in my garage.

In the meanwhile, to build this Robot Summer Camp, Tesla’s going to need more capital. So last night they dropped a $1.8 billion convertible note. Under normal circumstances, dilution might be a negative for a company’s share price. But not with Tesla. It’s a huge positive, apparently and the shares are surging – “It proves their ability to raise capital at will!” Oh my god. Maybe it is Utopia – Utopia for investment bankers – because when money has lost all meaning and becomes untethered to reality, you can really make a lot of it.

It’s not just Tesla. Ryan Detrick tells us that the current streak for small cap growth stocks is kind of special. They’re up 13 of the last 14 days. The last time that’s ever happened has been never. In, like, intergalactic history. First time for everything. May as well be now.

This weekend I’m going to Colorado to get gay-married at a legal marijuana store. Seriously weed is legal in America. Took decades but it feels like an overnight phenomenon. No wonder everyone’s giddy.

People are exchanging US legal tender for digital coins with dogs on them. Are we worshipping the Golden Ram?


The number one song in America this week is by Pharrell Williams and it’s called ‘Happy – sample lyric: “Clap along if you feel that happiness is the truth!” – I’m totally clapping along, Pharrell! The song’s been out since last June (from the Despicable Me 2 soundtrack) but it’s only now climbed to the top of the charts. It looks like it’ll stay there. It couldn’t be more perfectly in sync with this moment. The number two song in the country is something about Katy Perry having sex with a magic horse, I don’t know what that means.


As of this writing, stocks are challenging all-time highs across almost every category and sector. Corporate bonds and junk bonds are inexplicably racing higher as well. I have no idea why, because Treasurys are also going up. So is gold, so is silver. So are Greek and Italian stocks. Everything is awesome!

Now when do we get smacked in the head with a 2×4? You know, for old times’ sake.


Video: Russian TV on Bankers’ Stressful Lives

Russian TV on Bankers’ Stressful Lives

By The Banker 

I did an interview recently for RT London, which I gather is sort of Putin’s version of a Russian CNN or Qatar’s Al Jazeera. Just more sensational.

They wanted to cover what they call a recent string of high-profile banker suicides.  I have zero reason to think bankers commit suicide in higher numbers than any other profession, and if I had to guess, the rate of depression or suicide probably reflects prevailing rates in other high stress areas.

But of course, stressful jobs have different effects on different people.  Below is my 15-seconds of skype video fame on RT London TV.


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The ECB receives another disinflationary warning

The ECB receives another disinflationary warning

Courtesy of
The ECB received another warning today: the German CPI rate came in below expectations. The disinflationary pressures are no longer just about the Eurozone periphery.



Moreover, the euro area private loan balances continue to contract and the broad money supply growth remains weak.

Reuters: – "Weak money supply growth is not only condemning the euro zone to stagnant recovery, but it is raising the odds that the single-currency area could easily slip back into recession again," said David Brown at New View Economics. 

"The ECB still needs to think outside the box to get the euro zone motoring into the fast-lane," he added. "A change of heart on quantitative easing still beckons ahead." 

The ECB, worried that inflation risks getting stuck in a "danger zone" below 1 percent, is considering whether to take fresh policy action next Thursday to support the economy.

Bunds rallied on the news, with the market still anticipating an easing action from the ECB. The 2-year German note yield dropped down below 10bp again.


While the ECB has been counting on improving business confidence in the Eurozone to stabilize the recovery, surveys may end up being misleading. With a great deal of the euro area expansion relying on exports and China's (and other EM nations) growth slowing, sentiment can turn very quickly.


Weekly Unemployment Claims “Unexpectedly” Rise; Claims in Recession Pattern?

Courtesy of Mish.

Weekly unemployment initial claims unexpectedly rose to 348,000 this week.

The number of Americans filing new claims for unemployment benefits unexpectedly rose last week, but the underlying trend suggested no shift in labor market conditions.

Initial claims for state unemployment benefits increased 14,000 to a seasonally adjusted 348,000, the Labor Department said on Thursday. Claims for the prior week were revised to show 2,000 fewer applications received than previously reported.

Economists polled by Reuters had forecast first-time applications for jobless benefits slipping to 335,000 in the week ended Feb. 22, which included the Presidents Day holiday.

While last week’s increase pushed them to the upper end of their range so far this year, it probably does not signal labor market weakness as claims tend to be volatile around federal holidays.

Weekly Claims Since 1967

Recession Pattern?

Once claims bottom then start to rise, the above chart shows a recession usually follows. The only exception was 1993, smack in the middle of an internet boom.

It’s impossible to know if claims have indeed bottomed, but a secondary pattern shows this is an area in which claims bottomed five out of the last six times. If claims bottomed again now, it would make six out of seven.

This “unexpected” event coincides with numerous other “unexpected” events, nearly all of them weaker than expected.

String of Unexpected Events

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Tesla Plans To Build World’s Biggest Battery Factory

Tesla is set to announce a plan this week to build the world’s largest battery factory. The plan will include the involvement of Panasonic and other partners, and it will be so big that Tesla’s CEO Elon Musk is calling it a “gigafactory.”

The motivation for building the factory is multiple. Tesla has struggled to secure a reliable supply of batteries, and building a large facility will allow it to be able to build its own – a step towards vertically integrating Tesla’s electric vehicle business. Tesla could also sell batteries to other EV companies, as well as sell batteries for storing energy storage from renewable sources. This would provide alternative revenue streams for a company that has thus far focused solely on the luxury car market.

The impact on the EV market could be huge. Tesla’s factory, which could cost $2 billion to $5 billion, would be able to churn out 30 gigawatts of production capacity each year. The gigafactory would not only be the largest battery plant in the world, but would more or less equal all global output combined. This could dramatically lower the cost of producing lithium-ion batteries for electric cars, typically one of the costliest components. Bringing down battery costs will be key to making electric vehicles affordable for the mass market.

But the implications could go beyond the EV market. Renewable energy that is intermittent has been searching for a way to capture and store energy to be used in off hours. Tesla’s gigafactory could bring down the cost of energy storage, allowing solar energy to be discharged at night and wind power to be used during calm hours. SolarCity, of which Elon Musk is the largest shareholder, would purchase Tesla batteries for its solar systems.

The location of the gigafactory has not yet been announced, but Musk said it would include lots of solar and wind to power it, leading many analysts to assume somewhere in the southwest U.S., such as New Mexico.

Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Energy Intelligence Report gives you this and much more. Click here to find out more.

If You Missed It, Uranium Is Back

We got one of the biggest rallies in years for uranium stocks yesterday.

Producers like Cameco jumped over 8% on the day. Spurred by news that Japan is officially sticking with nuclear as part of its energy mix.

The Japanese government released a draft of its final energy policy plan. Noting that nuclear should continue to be the country's "key base-load power source" for the next 20 years.

The move comes after some suggestion lately that Japan may try to move away from nuclear. Following protests against atomic energy in the country.

The most interesting thing was the size and speed of the gains in stocks following the news. In short, it appeared investors are now looking for any reason to get excited about the uranium sector.

In fact, the Japanese news was in many ways a non-event. The government made nearly the exact same statements about nuclear in a draft energy plan in December. And even the final plan doesn't commit to any hard targets on nuclear power quotas or timing on reactor re-starts around the country.

Nonetheless, uranium stocks responded in a major way. Suggesting this is simply a space whose time is coming around.

In the boom-and-bust resource cycle there's a period where things usually become so bleak that investors start looking for any reason to become optimistic. We've now hit that point in uranium. Where there's been so little to cheer about for almost three years.

Investors are sensing there's a good story shaping up here. With supply-demand fundamentals running the tightest of any metal. And prices sitting at ultra-low levels, where some appreciation is almost certainly required in order to maintain even a basic amount of mine production.

Amid such a situation, it's natural for people to start looking for reasons to turn bullish. They found one yesterday–and there will undoubtedly be more coming.

Here's to the full cycle.

Benefit From the Latest Energy Trends and Investment Opportunities before the mainstream media and investing public are aware they even exist. The Free Energy Intelligence Report gives you this and much more. Click here to find out more.

The Ty Cobb Approach to Retirement Investing

The Ty Cobb Approach to Retirement Investing

By Dennis Miller

When baseball fans talk about players from the early 1900s, Babe Ruth is normally the first person mentioned. He was a great home-run hitter with 714 career home runs, a record that stood for almost 40 years. Only two men have surpassed it. Ruth struck out 1,330 times—a record that also stood for several decades.

Most people think of Ty Cobb as a gritty player who held the career stolen-base record for many years. But let’s look a bit deeper. Ty Cobb broke into major-league baseball in 1905 at the age of 19 and hit .240 his first season. For the next 23 seasons, he hit over .300.

Cobb holds a lifetime batting average of .367, a record that still stands today: 85 years and counting. His career strikeout total is 357. He averaged 14.9 strikeouts per season, striking out 3.1% of the time, a remarkably low average.

Young people love to swing for the fences and hit those huge gains. With retirement money, an occasional home run is nice; however, our overriding goal is to preserve capital and avoid catastrophic losses. Ty Cobb didn’t hit as many home runs as Babe Ruth, but he was a model of consistency.

Once you’ve built your nest egg, you’re not trying to run up the score; you’re trying to stay ahead.

Anyone who has tried to play catch-up with his portfolio can tell you there’s no such thing as a five-run homer. Newsletters touting the chance to double or triple your money can grab our attention, but experienced investors realize that those gains are only possible if you’re willing to take on the commensurate risk.

Swinging for the fences with retirement money won’t get the job done. With money that must last forever, putting your emotions aside and focusing on safety and consistency is paramount.

Safety First

Have you ever watched a thin-ice rescue scene? A person standing with all of his weight on thin ice can easily fall through as all his weight is concentrated. The rescuer trying to reach this person normally lies flat across the ice, spreading out his weight.

The same approach works for today’s retirement investor. Step one is to spread risk through diversification among (and within) asset classes, selective investments, position limits, and real-time monitoring of your portfolio via stop losses. While we like the income, avoiding catastrophic losses is our mantra.

It’s also worthwhile to reassess just what “safe” means. We can’t count on inflation remaining at historical 2% levels. FDIC-insured CDs and US Treasuries are now guaranteed money losers when you factor in inflation. (“FDIC insured” does not shield us from inflation.)

This brings us to the Step two in the Ty Cobb approach: inflation protection. Investing in long-term, fixed-income investments during times of high inflation can result in catastrophic losses—precisely what we need to avoid.

Step three: find investments with low interest-rate sensitivity. Ross Perot coined the phrase “giant sucking sound” to describe jobs leaving the US. That will pale in comparison to the giant sucking sound when interest rates start to rise and everyone tries to exit the market at once. The scene after Bernanke’s tapering remark was a small preview. Interest-rate-sensitive investments will be hit hard and fast.

The long-term bond market offers a good example of interest-rate sensitivity. Take an A-rated, ten-year corporate bond paying 3.68%, for example. Now imagine you bought $10,000 worth; you’d receive $368 per year in interest until maturity. If, however, market interest rates rise during that time, you’d have to discount your selling price to resell that bond in the aftermarket to compensate for its below market interest rate.

“Duration” is the term for calculating that discount. The duration for this bond is 8.41. For every 1% rise in market interest rates, the resale value of your bond will drop 8.41%, or $841.00—more than two years’ accumulated interest. Should this happen, you’d have two lousy choices: You could hold on to the bond at a lower-than-current-market-value interest rate until it matures; or you could sell your bond for less than you paid for it.

If inflation is the reason interest rates are rising, that decreases your buying power even further, particularly if you choose to hold on to the bond.

While top-quality bonds are considered safe, that safety stops at the borrower’s ability to repay you. It does not protect your investment from a reduced resale value in the aftermarket, nor does it protect you from inflation. At the risk of sounding like a broken record, let me repeat myself: holding long-term, low-interest-paying bonds at the wrong time can produce catastrophic results.

Interest-rate sensitivity isn’t limited to bonds. The stock market now has a similar problem. Many companies paying high dividends are so flooded with cash that they’ve become interest-rate sensitive. Utility stocks, for one, come to mind. When Bernanke said “taper,” the prices of utility stocks tumbled.

It is important to understand that this is a distinct type of risk. Should the market rise dramatically, stocks and bonds with high interest-rate sensitivity will be extremely vulnerable.

The final step in the Ty Cobb approach is finding a way to maintain your quality of life while managing your portfolio. While “set it and forget it” isn’t an option, no one wants to spend all of his or her time fretting about money. Finding ways to accomplish your investment goals and to sleep comfortably at night is what it’s all about.

So, to recap, your overriding objectives are to:

  • avoid catastrophic losses;
  • protect ourselves from inflation;
  • minimize interest rate sensitivity; and
  • free up time to enjoy life.

Your Investment Pyramid

Core holdings should make up the base your investment pyramid. Core holdings—precious metals, farmland, foreign currencies—are about survival. Hopefully you never have to touch them. No, I’m not suggesting that you prepare for the apocalypse, but we all need survival insurance. Mentally and practically, it should be separate from your active portfolio.

On the other hand, the investments recommended in the Money Forever portfolio are for income and profit. These investments are meant to keep you going for the rest of your life.

Here are the allocations you should use in today’s market. As conditions change, you may have to make adjustments, but we’ll help you do just that as events unfold.

The Ty Cobb approach uses three investment asset classes:

  1. Equities providing growth and income and a high margin of safety;
  2. Investments made for higher yield coupled with appropriate safety measures; and
  3. Conservative, stable income vehicles.

50-20-30 Equals Bulletproof

You can balance yield and safety in today’s market. How safe is the Miller’s Money Forever approach? Bulletproof, in my opinion. And that comes from a former Marine who understands that bulletproof is doggone safe—but nuclear trumps all. There are some cataclysmic events that are effectively impossible for individual investors to predict or protect against. So, unless you’re the “build a nuclear bunker” type, our approach should let you sleep well at night and enjoy retirement with minimal financial stress.

We currently recommend holding 50% of your portfolio in solid, diversified stocks. These stocks should provide dividend income and growth through appreciation. Invest no more than 5% in any single pick, and use a 20% trailing stop loss. This way, the most you can lose on any single pick is 1% of your portfolio. Sometimes we recommend tightening our stop losses on specific stocks—we’ll notify you of those circumstances in a timely fashion.

If you follow the 5% rule, you should have no more than 10 stock positions in this 50% slice of your portfolio.

You might be wondering: Why not just invest in an S&P 500 fund? When the market swings, S&P 500 fund investors will be the first ones headed for the door, with the program traders that short the S&P chasing them out. We got our clue with the “taper caper,” and we want to mitigate that risk.

For the Money Forever portfolio, we searched for solid companies that are not so flooded with investor money that they’ve become interest-rate sensitive. Dealing with our picks individually allows us to limit our positions and set stop losses. We’re better off trading a little bit of yield for the safety of investing in solid companies that are less volatile than the market as a whole.

Catching a peek our Bulletproof portfolio is risk-free if you try today. Access it now by subscribing to Miller's Money Forever, with a 90-day money-back guarantee. If you don't like it, simply return the subscription within those first three months and we'll refund your payment, no questions asked. And the knowledge you gain in those months will be yours to keep forever.

The article The Ty Cobb Approach to Retirement Investing was originally published at
Picture source: Wikipedia.

Are Drone, Workerless Ocean Freight Ships Coming? What About Jobs? Insurance? Inflation?

Courtesy of Mish.

Here is the question of the day: Are drone, workerless ocean freight transport ships coming?

If shippers can pull it off, the cost saving would be immense. But what about the job losses? Insurance? Inflation?

Let’s explore the questions with a look at the Bloomberg article Rolls-Royce Drone Ships Challenge $375 Billion Industry.

In an age of aerial drones and driver-less cars, Rolls-Royce (RR/) Holdings Plc is designing unmanned cargo ships.

Rolls-Royce’s Blue Ocean development team has set up a virtual-reality prototype at its office in Alesund, Norway, that simulates 360-degree views from a vessel’s bridge. Eventually, the London-based manufacturer of engines and turbines says, captains on dry land will use similar control centers to command hundreds of crewless ships.

Drone ships would be safer, cheaper and less polluting for the $375 billion shipping industry that carries 90 percent of world trade, Rolls-Royce says.

The European Union is funding a 3.5 million-euro ($4.8 million) study called the Maritime Unmanned Navigation through Intelligence in Networks project. The researchers are preparing the prototype for simulated sea trials to assess the costs and benefits, which will finish next year, said Hans-Christoph Burmeister at the Fraunhofer Center for Maritime Logistics and Services CML in Hamburg.

Even so, maritime companies, insurers, engineers, labor unions and regulators doubt unmanned ships could be safe and cost-effective any time soon.

Crew costs of $3,299 a day account for about 44 percent of total operating expenses for a large container ship, according to Moore Stephens LLP, an industry accountant and consultant.

The potential savings don’t justify the investments that would be needed to make unmanned ships safe, said Tor Svensen, chief executive officer of maritime for DNV GL, the largest company certifying vessels for safety standards.

While each company can develop its own standards, the 12-member International Association of Classification Societies in London hasn’t developed unified guidelines for unmanned ships, Secretary Derek Hodgson said.

“Can you imagine what it would be like with an unmanned vessel with cargo on board trading on the open seas? You get in enough trouble with crew on board,” Hodgson said by phone Jan. 7. “There are an enormous number of hoops for it to go through before it even got onto the drawing board.”

100% Guaranteed to Happen

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Obamacare: Now Appearing On Your Restaurant Bill

Obamacare: Now Appearing On Your Restaurant Bill

Courtesy of ZeroHedge. View original post here.

That the bulk of Americans (especially those 4+ million whose insurance policies have recently been cancelled as a result of the ACA) have to pay more for healthcare as a result of Obamacare, is now largely accepted and well-known. But did you know that the cost of Obamacare is slowly metastasizing to other places? Such as your restaurant bill.

Presenting Exhibit A.

From CNN:

Several restaurants in a Florida chain are asking customers to help foot the bill for Obamacare. Diners at eight Gator's Dockside casual eateries are finding a 1% Affordable Care Act surcharge on their tabs, which comes to 15 cents on a typical $15 lunch tab. Signs on the door and at tables alert diners to the fee, which is also listed separately on the bill.

The Gator Group's full-time hourly employees won't actually receive health insurance until December. But the company said it implemented the surcharge now because of the compliance costs it's facing ahead of the Affordable Care Act's employer mandate kicking in in 2015.

"The costs associated with ACA compliance could ultimately close our doors," the sign reads. "Instead of raising prices on our products to generate the additional revenue needed to cover the costs of ACA compliance, certain Gator's Dockside locations have implemented a 1% surcharge on all food and beverage purchases only."

The company employs a total of 500 people, with about half working full-time. Currently only management receives health benefits, but the restaurant will have to offer coverage to all full-timers once the mandate takes effect. The fee will allow the company to continue offering full-time hours to many workers, according to Sandra Clark, the group's director of operations.

"I'm just trying to keep the employees I have that I've worked hard to train," Clark said. 

In addition to the costs of providing health care, the company hired one additional staffer and a consulting firm to make sure it is complying with the law and to assist in the additional tracking of workers' hours and wages required by Obamacare, said Clark.

Clark is not sure how much the company is spending on compliance, but estimates that it will cost $500,000 a year to extend insurance to its full-time hourly restaurant workers. The surcharge may bring in about $160,000 a year, she hopes.

So more surcharges coming then.

The bottom line decision for businesses: fire your workers, or pass through the costs to other consumers. Many have done the fomer, or converted full-time workers to part-time status. Increasingly more are opting for the latter. How long until the popular outcry that this latest "freebie" by the government was anything but.