"Waiting For Something to go KABOOM"

Jeffrey Gundlach, CEO, DoubleLine Capital LP:

“You’re just going to build up pressure in the pressure cooker, and when it blows, the lid will blow sky-high, and that’s when you get to phase three...If phase three takes two years, it’s worth waiting for. The markets don’t have lots of opportunity now.”

[October 2012]

Guy makes too much sense.
Will probably be ignored.

Bloomberg profile here.

Stock Market Waltzes Despite Data

[click here to enlarge--from ZeroHedge]

Figures released this morning indicated that U.S. stocks, up over 2% since yesterday's lows, are into some serious Kool-Aid.  First, a revision of the government's estimate of third-quarter GDP suggests that economic growth may soon go from anemic to nonexistent.  Increases in personal disposable income, business investment, and real final sales--the things that we want to go UP--were revised downward.  Government expenditures and unsold inventories--which we would like to see go DOWN--were up.  With stats like these, no one is expecting Q4 GDP to match Q3's.

Also headed in the wrong direction are initial unemployment claims.  The four-week moving average (chart below) has reversed back up over 400,000 for the first time in over a year.  With consumer spending accounting for roughly 70% of GDP, it is hard to see how things will get better soon.

Speaking of Cliffs...

How about these?

[click here to enlarge--thanks to ZeroHedge]

"The U.S. fiscal system provides most households with very strong reasons to limit their labor supply and saving."

--Laurence J. Kotlikoff & David Rapson,

"Does It Pay, At the Margin, To Work and Save?"

(2006)

Tuesday Tune-up

Taylor Swift (w/ Colbie Caillat), "Breathe"

Quote for the Week, November 25-December 1, 2012

No history is a matter of record; it is a matter of faith.
--James Branch Cabell

Tuesday Tune-up

Dixie Chicks, "The Long Way Around"

The Twinkie Is Dead, Long Live the Twinkie

Don't worry, Twinkies will survive Chapter 7.

Hostess Brands announced at week's end that it was breaking off negotiations with striking employees and entering Chapter 7 liquidation proceedings.  The company had been looking for concessions from unions on wages and pension benefits.  By holding out, the workers have lost their jobs altogether--18,500 of them (including 500 in Maine).  [The drag of union demands on profitability is succinctly documented here.]

The Case of the Disappearing Twinkie has brought a serious outbreak of nostalgia.  Apparently Hostess concoctions filled enough Baby Boomer lunchboxes back in the good ol' days to cause--a half century later--a veritable epidemic of latent health consequences, including diabetes and, now we see, saccharine sentimentality.  I remain immune.  It is possible that I have never eaten a Twinkie in my entire life.  It could be, could be, that one or two got dropped into my Halloween goodie bag during all those years of door-to-door trick-or-treating.  But my mother would never in a quadrillion years buy or serve mere "snack" food.  Her grocery cart at the local A & P invariably carved a wide circle around the Twinkie-Doodle-Dog aisle.

Those who do work that particular aisle can dry their eyes.  Twinkies are still made in Canada, so Mainers accustomed to crossing the border to buy drugs can load up on their favorite junk-food fix at the same time.  The brand will almost assuredly be revived in the U.S., just under different ownership.  Twinkies will still be there for Wall-E to find in the post-apocalyptic rubble.  It should be noted that the New Twinkies will be different in one important way.  When you buy them, you will no longer be paying for the retirement of the workers who make them.

But you will still need to pay for your insulin.

Quote for the Week, November 18-24, 2012

Autumn's fungussy, berries're manky, leaves're rusting, V's of long-distance birds're crossing the sky, evenings're smoky, nights're cold, autumn's nearly dead.  I hadn't even noticed it was ill.

--13-year-old Jason Taylor in David Mitchell's novel, Black Swan Green

Euro Zone 'on Life Support'

Kyle Bass sees the end game in Europe. 
[2:37]

BusinessInsider recap here.

If you have more time, below is the latest piece from Hayman Capital Management, L.P., in which Bass hits his usual themes of European dystopia, monetary debasement, self-referencing leverage, likely economic collapse, "inevitable" war, etc.:

Kyle Bass

Clinton 'Surplus'? Never Happened.

Question:  Why did you rob Social Security?

Slick Willy:  Because that's where all the money was.

Christopher Whalen at Institutional Risk Analytics:

"Presumably former Chairman [Paul] Volcker understands the difference between raising revenue to eliminate a deficit and merely borrowing money from the Social Security trust fund to finance a deficit. At the start of the 2000s the cash surplus from Social Security was financing the federal budget deficit, a situation that is now reversed. The federal budget deficit actually grew in those years. Today Treasury is compelled to borrow cash in the public debt markets in order to redeem earlier borrowing from the Social Security trust fund in order to pay recipients....

"When will Volcker and his peers among Fed Chairmen admit that the central bank is the main culprit in this growing national economic crisis? Is not the Fed the enabler for a national Congress literally out of control? The only sane choice is default and debt restructuring, but you will never hear Volcker or Greenspan or Bernanke ever speak such truth in public. Instead they take the cowardly path of defaulting quietly, via the printing press."

Gosh, a U.S. default?  Pretty unthinkable.  Kind of like secession.

Ron Paul Signs Off

Congressman Ron Paul (R-TX) gave his valedictory speech in the U.S. House of Representatives yesterday.  He retires after 23 years of service with no great sense of accomplishment:

"In spite of my efforts, the government has grown exponentially, taxes remain excessive, and the prolific increase of incomprehensible regulations continues.  Wars are constant and pursued without Congressional declaration, deficits rise to the sky, poverty is rampant and dependency on the federal government is now worse than any time in our history."

[Other than that, we're #1.]

If you prefer it straight from the horse's mouth, here it is:

[50 minutes]

Under My Thumb

...boasted Mick Jagger in the Rolling Stones' '60s hit.  Now singing that same tune is Samsung, the Korean electronics manufacturer and supplier to Apple Inc. of the A6 mobile processor used in iPhones.  It has just come to light that Samsung has raised its price for the A6 by 20%.  When Apple executives recently warned investors of shrinking profit margins, this is what they meant.  It is unlikely that Apple will pass on this added cost entirely to the consumer.  The company will have to eat at least some of it.

We have seen what this means for Apple's stockholders.  Among them is the Maine Public Employees Retirement System, which has more money invested in Apple than any other stock.  See what the share price has done in the last seven weeks:

AAPL [6-month chart]

That's a 23% drop.  For MainePERS, a steady practitioner of buy-and-hold, $37 million of portfolio value has been pressed into apple juice.  And the squeeze may just be getting started.  ZeroHedge speculates here that other component suppliers to Apple may be emboldened to follow suit.  Remember the rules, now.  Portfolio insurance is paid by Maine taxpayers sooner or later.  Oy!

Samsung inside.

Tuesday Tune-up

The Wailin' Jennys, "Bird Song"

Quote for the Week, November 11-17, 2012

Stock markets are mirrors of the human psyche. Like Homo sapiens, they can become depressed. They can even suffer complete breakdowns.

--Niall Ferguson

Election Post-Mortem

Arthur Kroeber, GaveKal Research

"It is now virtually impossible for a Republican presidential candidate to win anywhere in the Northeast, the upper Midwest, or the West coast...[E]verywhere the knowledge economy is growing, Republican credibility is shrinking. This is astonishing given that in knowledge economy hubs like Silicon Valley, entrepreneurship is prized and libertarian values hold sway. As we have written time and again, the US economy is becoming ever more knowledge based. If the Republican Party is to stay relevant, and have a shot at electing a president in four years, it will need to give up its affection for faith-based resentment and engage with the changing economic and social reality of America."

Lovin' It Less

Or maybe likin' it--sort of.

You know you are in a recession when Mickey D's sales comps go negative:

[click here to enlarge--nice catch by ZeroHedge]

I wonder if that red bar means that somebody's job is on the line.

[update 11-16-12--]

Somebody's was.  Today brings the announcement that Jan Fields, the company's president of U.S. operations, is out.  She can now train for triathlons full time.  Calories in, calories out.

So What's Next?

Barack Obama will parlay the next four years into another four after that, according to investment analyst Porter Stansberry (speculating here).  He will do this by being the right person in the right place at the right time.

The combination of

rising domestic production of shale oil

and

expanding global markets in natural gas

will make the U.S. an energy exporter.  That means profits for the producers and transporters--and licensing fees, royalties, and corporate taxes for the federal government.  Don't forget the re-shoring of manufacturing jobs as well.  The new revenues, says Stansberry, will buy Obama (or his proxy) another term.  Or two.

There is a flip side to rampant resource exploitation, naturally.  As Michael Feller opines at Macro Investor:

"The world, if it were a company, would be Enron. Its various divisions have, in the past 100 years or so, delivered blistering rates of growth, but its business model is structurally unsound and there is a massive disconnect between the gains of its executives and the returns enjoyed by all shareholders. Its administration is opaque, its financial measurement is flawed, its environmental record is awful and many of its managers are corrupt, incompetent or both. Some don’t even show up for work. Most of all, however, the world is largely borrowing from its future to deliver returns to the present. And while there’s no small amount of true innovation and genius in the mix, most of this entity’s economic performance, its profit line if you will, has been at the expense of its balance sheet: the earth."

[Full comment here.]

The International Energy Agency has just released its World Energy Outlook 2012, containing projections for global energy flows over the next twenty years.  [Click here for the executive summary.]  The IEA sees 2030 as the break-even year for net energy production in the U.S. 

[update, 11-18-12--]

However, balancing the books in total energy flows is not the same as being oil-independent.  So says this petroleum geologist, who calls the reversal in U.S. oil production "slight"--and not likely to close the present shortfall (with production lagging consumption) of 9 billion barrels per day.  Perception, as his graphs show, is all in the presentation.

More of the Same?

[from Grant Williams, "Signal 2 Noyz"]

Not sustainable.

Go back one more year to include W's last.  Add in the recipients of disability benefits, and it looks even worse:

[click here to enlarge--courtesy ZeroHedge]
NFP = Non-farm payrolls

Definitely not sustainable.

[In fairness to the President, these numbers are beyond his control.]

[Obama, hours ago]

Four more years.

Then what?

Tuesday Tune-up

Billy Joel, "Miami 2017"
(Turnstiles, 1976)

Quote for the Week, November 4-10, 2012

Do not go where the path may lead, go instead where there is no path and leave a trail.
--Ralph Waldo Emerson

Check the Box, Then Begin

PIMCO's Bill Gross

Armchair quarterbacks, take note:

"Elephants/Donkeys, Donkeys/Elephants. Perhaps the most farcical aspect of it all is that the choice between the two seems to occupy most of our time. Instead of digging in and digging out of this mess on a community level, we sit in front of our flat screens and watch endless debates about red and blue state theologies or listen to demagogues like Rush Limbaugh or his ex-cable counterpart Keith Olbermann."

[Bill's latest monthly comment is here.]

Ol' Hickory Takes Down the Biggest Bank

Might the following ring a bell?

"It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. Distinctions in society will always exist under every just government. Equality of talents, of education, or of wealth can not be produced by human institutions. In the full enjoyment of the gifts of Heaven and the fruits of superior industry, economy, and virtue, every man is equally entitled to protection by law; but when the laws undertake to add to these natural and just advantages artificial distinctions, to grant titles, gratuities, and exclusive privileges, to make the rich richer and the potent more powerful, the humble members of society-the farmers, mechanics, and laborers-who have neither the time nor the means of securing like favors to themselves, have a right to complain of the injustice of their Government. There are no necessary evils in government. Its evils exist only in its abuses. If it would confine itself to equal protection, and, as Heaven does its rains, shower its favors alike on the high and the low, the rich and the poor, it would be an unqualified blessing. In the act before me there seems to be a wide and unnecessary departure from these just principles."

--Andrew Jackson, 7th President of the United States, vetoing a bill from Congress to extend the charter of the nation's central bank

[Complete veto message here.]