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Week 10 2024

The upcoming week is teeming with critical economic data releases that have the potential to sway markets and shape monetary policy decisions. Among them, the US Services Purchasing Managers’ Index (PMI) from both S&P and the Institute for Supply Management (ISM), Durable Goods Orders, employment data from ADP, the Bank of Canada’s (BoC) rate decision, the US Job Openings and Labor Turnover Survey (JOLTS), Weekly EIA Crude Oil Inventories, the Federal Reserve’s Beige Book, the US Trade Balance, and the comprehensive Employment Situation report stand out as key indicators to watch.

Services Sector Health and Economic Implications

The US S&P and ISM Services PMIs are pivotal in evaluating the vitality of the services sector, which encompasses a wide array of industries from finance to retail. These indices offer insights into employment trends, new orders, and business activity, with readings above 50 signaling expansion. Recent trends have shown that markets react positively to data suggesting a cooling in the services sector, potentially aiding the Federal Reserve’s efforts to tame inflation by moderating economic activity.

Manufacturing and Trade Dynamics

The Durable Goods Orders report tracks new orders for long-lasting manufactured goods, providing a lens into the manufacturing sector’s health and broader economic activity. Fluctuations in this report can signal changes in industrial demand and production trends. Similarly, the US Trade Balance offers a glimpse into the country’s international trade dynamics, with the longstanding trade deficit reflecting the balance between imports and exports.

Employment and Inflation

Employment data, including the ADP Employment Change and the comprehensive Employment Situation report, which encompasses Nonfarm Payrolls, Unemployment Rate, and Average Earnings, are critical for assessing the labor market’s health. These indicators not only reflect employment trends but also have direct implications for inflationary pressures and monetary policy decisions. The Federal Reserve closely monitors these reports, balancing its dual mandate of fostering maximum employment and stabilizing prices.

Energy Market and Monetary Policy Outlook

The Weekly EIA Crude Oil Inventories report sheds light on supply and demand dynamics in the energy market, influencing oil prices and, by extension, economic conditions. Meanwhile, the Federal Reserve’s Beige Book provides qualitative assessments of economic conditions across various sectors, offering context to numerical data and aiding in monetary policy formulation.

Market Anticipation and Policy Implications

Market participants are keenly awaiting these reports to gauge the direction of economic policy, especially in light of the Federal Reserve’s inflation targets and the Bank of Canada’s interest rate decisions. The interplay between employment data, inflationary trends, and trade dynamics will be critical in shaping expectations for future interest rate movements and monetary policy adjustments.

Conclusion

As we navigate through a week rich in economic data releases, the insights gained will be invaluable for understanding the complexities of the current economic landscape. From the health of the services and manufacturing sectors to employment trends and trade dynamics, these reports collectively paint a picture of the economic challenges and opportunities that lie ahead. Policymakers, investors, and analysts alike will be parsing this data to make informed decisions in an ever-evolving economic environment.

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The PCE Price Index: A Comprehensive Gauge of US Inflation

The US Personal Consumption Expenditures (PCE) Price Index plays a pivotal role in gauging the inflationary landscape of the United States, offering invaluable insights into the changing prices of goods and services that consumers across the country purchase. Released monthly by the Bureau of Economic Analysis, the PCE Price Index stands as a critical barometer for understanding inflation trends and guiding monetary policy decisions.

The Importance of the PCE Price Index

The PCE Price Index is more than just a statistical measure; it is a vital tool for policymakers, especially those at the Federal Reserve, who rely on its findings to make informed decisions regarding interest rates and monetary policy. The index’s ability to reflect changes in consumer spending habits and to cover a broad spectrum of goods and services makes it a preferred measure of inflation, offering a comprehensive view of the economic pressures facing households.

Comparison with Other Inflation Measures

While there are several measures of inflation, the PCE Price Index is often favored over alternatives like the Consumer Price Index (CPI) for several reasons. Unlike the CPI, which is based on a fixed basket of goods and services, the PCE Price Index adjusts its basket to reflect changes in consumer spending patterns, providing a more accurate representation of actual consumer expenditures. This flexibility ensures the PCE captures a wider array of expenditures, from healthcare to financial services, making it a more dynamic gauge of inflationary pressures.

Market Implications of the PCE Data

The release of the PCE data has significant implications for financial markets. For instance, a higher-than-expected inflation reading may signal to the Federal Reserve that interest rates need to remain elevated to bring inflation back to its target level of 2%. Such an outcome could dampen expectations for rate cuts, potentially strengthening US stock markets while exerting pressure on the dollar. Analysts from institutions like Unicredit and Societe Generale closely monitor these releases, analyzing components such as healthcare and financial costs to forecast future economic conditions.

Analyzing the January PCE Data

Taking a closer look at the January PCE data, analysts have pointed out the role of monthly volatility and specific one-off factors in driving the acceleration observed in the previous month. With components feeding directly into the PCE, such as those from the CPI, along with healthcare and financial costs from the Producer Price Index (PPI) showing increases, expectations are set for a more elevated PCE reading. Such insights are crucial for understanding the nuanced dynamics at play within the broader economic landscape.

References and Further Reading

For those interested in exploring the intricacies of the PCE Price Index and its implications further, several resources are available:

  • Bureau of Economic Analysis: As the source of the PCE data, the BEA website offers detailed reports and historical data on the PCE Price Index. ( https://www.bea.gov/data/personal-consumption-expenditures-price-index )
  • Federal Reserve: Provides insights into how the PCE data influences monetary policy decisions and interest rate adjustments.
  • “Monetary Policy and Inflation Dynamics” by John C. Williams: This paper offers an in-depth look at how inflation measures, including the PCE Price Index, guide monetary policy.

Conclusion

The US PCE Price Index is an indispensable tool for assessing inflation, reflecting the dynamic nature of consumer spending and the broader economic forces at play. Its comprehensive coverage and adaptability make it a superior measure for policymakers and analysts alike. By closely examining the PCE data and its components, one can gain a deeper understanding of inflationary trends and their implications for monetary policy and financial markets. As the economic landscape evolves, the PCE Price Index will continue to serve as a crucial guidepost for navigating the complexities of inflation and economic policy.

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    Explore how the US Jobless Claims reports are crucial for understanding labor market trends, impacting economic policy and monetary decisions.
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Jobless Claims: A Window into the Health of the US Labor Market

The US Weekly Initial and Continued Jobless Claims reports are pivotal indicators for gauging the health of the labor market, offering insights into the number of individuals seeking unemployment benefits for the first time and those continuing to receive them, respectively. These metrics are closely monitored by policymakers, economists, and market participants for their implications on economic stability, labor market dynamics, and monetary policy decisions.

Understanding Initial and Continued Jobless Claims

Initial Jobless Claims measure the weekly count of individuals filing for unemployment benefits for the first time. This indicator is a real-time measure of the labor market’s health, as it reflects the pace at which layoffs are occurring. A rising trend in initial claims suggests an uptick in layoffs, pointing to potential trouble in the job market and broader economic challenges. Conversely, declining initial claims often signal a robust job market, where fewer people are losing their jobs.

Continued Jobless Claims, meanwhile, track the number of people who are receiving unemployment benefits after having filed an initial claim. This figure provides insight into the duration of unemployment and the ease with which laid-off workers are finding new employment. Persistently high levels of continued claims may indicate a sluggish job market where reemployment opportunities are scarce, while decreasing numbers could suggest a recovering or strong labor market.

The Federal Reserve and Employment

Employment holds a critical place among the Federal Reserve’s mandates, directly influencing its monetary policy decisions. The Fed aims to achieve maximum employment and stabilize prices, striving for a 2% inflation target. In this context, the Jobless Claims reports acquire added significance. Higher-than-expected jobless claims, indicating rising unemployment, could be interpreted by the Federal Reserve as a positive development for curbing inflation, potentially aligning with its inflation targets. This perspective is based on the notion that higher unemployment could reduce wage pressures, thereby contributing to lower inflation.

Market Implications

The weekly Jobless Claims reports have a direct impact on financial markets. An increase in jobless claims, signaling higher unemployment, might be viewed through the lens of inflation control, potentially leading to a strengthening of US stocks and a weakening of the dollar. This counterintuitive response underscores the complex relationship between employment, inflation, and monetary policy. Financial markets often react to the implications of jobless claims data for future Federal Reserve actions, including interest rate adjustments and other monetary policy measures.

Historical Context and Examples

Historically, the jobless claims data has served as a leading indicator for economic downturns and recoveries. For instance, during the Great Recession of 2008-2009, a sharp increase in initial jobless claims highlighted the severe impact of the financial crisis on the labor market. Conversely, a gradual decline in jobless claims was among the early signs of economic recovery. Similarly, during the COVID-19 pandemic, the jobless claims data provided real-time insights into the pandemic’s devastating impact on employment and the subsequent recovery as public health measures eased and economic activity resumed.

Conclusion

The US Weekly Initial and Continued Jobless Claims reports are essential tools for understanding the labor market’s dynamics and their broader economic implications. By offering timely data on unemployment trends, these reports help policymakers, economists, and market participants assess economic stability, labor market health, and the effectiveness of monetary policy. As the labor market continues to evolve in response to economic developments, technological advancements, and policy decisions, the jobless claims data will remain a crucial indicator for navigating the complexities of economic policymaking and financial market analysis.

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No surprise, a lot of unicorns are actually donkeys.

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( Source : https://medium.com/@abhasvc/unicorns-vs-donkeys-your-handy-guide-to-distinguishing-who-s-who-f1b30942b2b6 )

I’ve been having this conversation a lot lately:

Friend: “Did you see [startup] just raised at a $1B valuation?”
Me: “Unbelievable.”
Friend: “They’re apparently killing it on [metric that is meaningless without the bigger picture].”
Me: “Yeah, but their [metric that also matters] is struggling.”

I am by no means the unicorn prophet, but here’s how I think about which companies have earned their unicorn status vs. which ones are playing a dangerous game of massive capital needs, sky high valuations, impossible expectations, and deferred judgement days. Hopefully, by the end of this post, you’ll have an intuitive feel for which startups actually have a shot at being unicorns and which ones are probably just donkeys.

The Fundamental Law of Growth

LTV = Lifetime Value of a Customer; CAC = Cost of Acquiring a Customer

Like Newton’s laws of gravity or momentum, most tech startups (see exceptions below*) who sell directly to their customers — both enterprises and consumers — must eventually obey the Fundamental Law of Growth: LTV/CAC > 3. There’s a lot of nuance as to why — a discussion that is better suited for a semester-long class than a blog post — but suffice to say that the LTV/CAC ratio speaks to a startup’s revenue trajectory, capital needs, and in turn, how much “irrational exuberance” is demanded of its investors. The lower the LTV/CAC ratio, the less efficient a company is at deploying capital and the more money it needs to fuel growth; conversely, the higher the LTV/CAC ratio, the more efficient the company is and thus the more value it creates for the same amount of capital. Though this can be derived, many before me have empirically observed that 3x is roughly the threshold needed to build big, sustainable businesses.

Assessing a company’s valuation is a discipline on its own and growth is only one factor in that calculation. However, for simplicity’s sake, one can assume that tech companies who don’t obey the Fundamental Law of Growth will eventually lose access to capital, drastically slow their growth, and watch their valuations plummet — those fabled unicorns will eventually emerge as donkeys. So with that, let’s dig into some examples…

*Companies whose value is not predicated on revenue (e.g., disruptive technologies, monopolies, social networks, intellectual property) as well as companies where revenue is achieved indirectly (e.g., ad-tech networks, certain marketplaces, certain viral growth startups) or discontinuously (e.g., government contractors) typically do not follow this rule


For each example, I’ll make assumptions about the various components of the LTV/CAC ratio (see below); some assumptions are based on publicly available data and others are just gut feels. If it’s the latter, I’ve generally erred on being generous to the startups.

ARPU = Average Revenue Per User

Case Example #1: HelloFresh, Subscriptions Meals

  • Customer Lifetime — in my household, we usually try each meal subscription company for a few weeks then switch it up, but let’s assume the average across all customers is 3 months or 0.25 years
  • ARPU — average revenue is probably 2 people, 3 meals per week, 3 weeks per month, so $60/week x 3 = $180/month or $2160/year
  • Margin % — we know from Mahesh’s excellent IPO filing teardown that their margin is 52% (sign of a strong operating team; that’s higher than I expected for this type of business!)
  • CAC — given the numerous other meal subscription companies, brick and mortar competitors, etc., it feels like the CAC is probably in the hundreds, say $400
LTV/CAC = 0.25 years x $2160/year x 52% / $400 = 0.70x

Under these assumptions, HelloFresh is an incredibly capital intensive company because of the (presumed) low customer lifetime/high churn. We know from the IPO filing that HelloFresh grew its revenue from $77M in 2014 to $290M in 2015 (276% growth), so you can understand why someone would say, “They’re killing it on revenue!”. We also know that the company didn’t report cohort retention data, but as per Mahesh, “they do mention that they achieve 2.8x LTV/CAC after two years.” Hold up, come again?Reporting LTV/CAC for only a subset of customers is disconcerting, and even then, it’s just under 3x; substituting 2 years into the LTV/CAC ratio suggests that the true CAC may be much higher ($800). Other food subscription and even some on-demand meal companies — Blue Apron, Plated, Instacart, Munchery, Sprig, etc. — may similarly have short customer lifetimes/high churn and thus low LTV/CAC ratios, thereby also violating the Fundamental Law of Growth.

Verdict: Donkey Watch

Case Example #2: Evernote, Productivity Software

  • Customer Lifetime — I use Evernote constantly, so I expect if anyone is going to have an extended lifetime, it’s them. But as a rule of thumb, lifetimes >3 years should only be considered in exceptional circumstances
  • ARPU — in most freemium products, paid customers make up only a tiny fraction (<5%). Nevertheless, let’s assume 25% are premium users at $50/year, so a blended ARPU of .25 x $50 = $12.50
  • Margin % — pure SaaS company with no customer service costs should probably achieve 70–90% margins, so let’s go with 90%
  • CAC — freemium models typically land in the $1–$100 CAC range, so let’s assume $20
LTV/CAC = 3 years x $12.50/year x 90% / $20 = 1.69x

Evernote has great customer lifetimes, margins, and low CACs; however, because their pricing is low, their overall LTV is limited and thus results in a low LTV/CAC ratio, again violating the Fundamental Law of Growth. Evernote could compensate by increasing pricing, but with other readily available substitutes (Google Docs, Microsoft OneNote), increased pricing likely increases churn too, so the pressure is on Evernote to then increase ARPU by increasing value (additional products, collaboration tools, AI insights, etc.).

Verdict: Donkey Watch

Case Example #3: Oscar, Health Insurance

  • Customer Lifetime — once you join an insurer, you typically stay with them until you switch jobs/get a job. <1.5 years is probably the average, but let’s use 2 conservatively
  • ARPU — $5000; saw this in an Oscar press release and it’s fairly typical of this market
  • Margin % — healthcare insurers have gross margins in the 5–10% range with a max of 15% as mandated by Obamacare, so let’s go with 15%
  • CAC — this is an expensive product for consumers to purchase and probably requires a light-touch inside sales team, so let’s assume CAC is $800
LTV/CAC = 2 years x $5000/year x 15% / $800 = 1.88x

Similar to HelloFresh, Oscar is posting massive revenue ($200M) and growth rates (135%), so you can again understand the hype around them; however, Oscar fails the Fundamental Law of Growth due to its low gross margins. If the Oscar team can achieve a CAC near $500 — perhaps because they’re the hip/fresh insurer on the block with best-in-class marketing — then maybe the company can still grow a horn, but that’s asking a lot given the inherent complexity and cost of the product. Recently, a number of other companies— Jet.com, Instacart, etc.— have built fast-growing businesses that operate on low margins, but they too are at risk of breaching the Fundamental Law of Growth.

Verdict: Donkey Watch

Case Example #4: ZocDoc, Online Physician Reservations

  • Customer Lifetime—I’ve heard that physicians typically churn after a year once they’ve established a sizable patient base, but let’s assume 2 years
  • ARPU — $3000 (publicly available)
  • Margin % — SaaS company with light-touch customer service should probably achieve 60–80% margins, so let’s assume 80%
  • CAC — Selling to physician practices must be challenging, so like any high-touch inside sales operation, ZocDoc’s CAC is probably in the $1–10K range; let’s assume $3K
LTV/CAC = 2 years x $3000/year x 80% / $3000 = 1.60x

ZocDoc has a good LTV overall, but their CAC is likely a show-stopper. Unfortunately, there’s no getting around that — selling to physicians is tough stuff, just ask Pfizer. Also, as competition increases, customer lifetimes and pricing erode too, further driving down the LTV/CAC ratio. I suspect this is why ZocDoc is shifting sales to hospital system customers (1000x higher LTV and only 20x higher CAC), but hard to know what fraction of their business this constitutes. Although I am not familiar enough with the unit economics of fantasy sports startups, I suspect that FanDuel and DraftKings may similarly be spending heavily on customer acquisition without the supporting customer lifetimes or ARPU needed to satisfy the Fundamental Law of Growth.

Verdict: Donkey Watch


Concluding Thoughts

I hope this framework gives you a better sense of how to evaluate today’s unicorn landscape. The companies above all have impressive, press grabbing growth metrics, but they also fail the Fundamental Law of Growth for different reasons — short customer lifetime, low pricing, low margin, and high CAC — so must be viewed with some skepticism.

The most obvious next question is: if the Fundamental Law of Growth is so simple, why did investors grant $B valuations to these companies and others in the first place? I believe the answer is a combination of downside protections, upside overoptimism, and what can only be described as FOMO.

Downside protections are being prominently discussed now in light of Square’s down round IPO (albeit still in unicorn territory); to put it simply, late stage investors have (smartly) insulated themselves from losses, so they’re willing to give more on valuations. With regards to upside overoptimism, I imagine that when these rounds were executed, both investors and entrepreneurs believed that things would look up — customer lifetimes would extend, ARPU would increase, margins would expand, and CACs would decline. Alas, it doesn’t always pan out that way, which is why we encourage our portfolio companies to stay conservative on valuations: big up rounds can be appealing in the short-term, but when companies stumble (which they often do), the subsequent down rounds can be outright devastating. Zenefits, for example, is likely to feel that pain shortly given their recently exposed stumbles.

Personally, I’m looking forward to a private market correction. I feel my colleagues and I have done a good job building a portfolio of companies with sound fundamentals and well-earned valuations; a return to sanity would be a welcomed change, as it would unlock quality talent that we can then direct to our companies and others who are playing the prudent, long game.

From Zero to Product in 14 Days

I’ve waited about 16 months to write this post. It’s very satisfying to have finally built the app I’ve been dreaming of, even with the risk of embarrassment of how “minimal” our MVP is. But none of that matters now, it’s finally built… time to put it in the wild.

The TL;DR: over 14 days of intense focus and determination, my roommate and I designed, developed, and deployed software for the venture capital community because we are super passionate about startups, want to help promote the investment ecosystem here in SF, and enjoy building software together. This post chronicles our journey.

View at Medium.com

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The ‘Dollar’ Run Hits The Corporate Bubble

 

Source : http://www.alhambrapartners.com/2015/08/14/the-dollar-run-hits-the-corporate-bubble/

The ‘Dollar’ Run Hits The Corporate Bubble

By the behavior of the Chinese yuan itself, given the financial size here, we can readily assume that any “dollar” problem that is clearly causing the PBOC’s actions are sizable. Currencies throughout Asia are being roiled not unlike 1997 and oil prices sunk to a new “recovery” low. While that all suggests far away turmoil relevant only to those foreign shores, there are many domestic and internal eurodollar problems that leave little doubt about unification and singularity. As I wrote this morning, there is only one currency war and that is the “dollar” as it implodes onto itself.

The spread of financial irregularity, including stumped and deviating central banks (the list only grows, PBOC the latest casualty), signals the decay that began on August 9, 2007, as it has accelerated since last year. Internal interbank rates have risen, especially lately, which is central to all this “dollar” turmoil. Repo rates surged in the past two weeks, and while the GC rate paused yesterday (MBS down only from 30.7 bps to 30.1 bps), it remains at a noticeably elevated station.

ABOOK Aug 2015 Run Repo GCABOOK Aug 2015 Run Repo GC QE Comp

With all that in mind, Jason Fraser of Ceredex Value Advisors alerted me to greater and certainly related turmoil in the less visible high yield spaces. The Bank of America/Merrill Lynch High Yield CCC Yield got absolutely slammed yesterday, rising from 13.58% to16.18%! That would suggest, as all listed above, that there has been inordinate and tremendous “dollar” pressure not in foreign, irrelevant locales but creeping into the contours of the domestic and internal framework. While that may be energy, as Jason points out, it cannot all be energy.

The surge there far surpassed the 2013 summer meltdown and actually equals the 2011 crisis crash.

ABOOK Aug 2015 Run BofAML HYs  CCC

In fact, other junk indicators were similarly taken out in a manner that we have seen before. The Bank of America/Merrill Lynch Master II yield was far less dramatic but still indicating a serious liquidity event in that risky space. As both yield indices make plain, the last time prices were so slammed was early to mid-December – right when the ruble was crashing and the franc/dollar problem was testing the Swiss National Bank’s last resolve.

ABOOK Aug 2015 Run BofAML HYs  Master II

December 16 also marked the low point in the S&P LSTA Leveraged Loan 100 Index. When last we left that part of the junk/risk market, it was selling off and only a few ticks above that December low. S&P has not updated its figures for the index since August 10, curiously going dark during all of this “dollar” turmoil. I emailed them directly for clarification, and the response I got was, “Just a lag in getting the data.”

I have no specific reason for doubting the sincerity of that reply and explanation, though I can’t help but note that it is awful curious that they would be having such pricing problems when the rest of their similarly situated class within the corporate bubble is as churning and possibly illiquid as the yuan. I cannot recall a similar lag in updating the index, but, again, I have no specific inside knowledge on their internal workings.

ABOOK Aug 2015 Leverage Lev Loan

The cumulative assessment of all these factors, great as they are in their individuality, is that the global financial system just endured this week another “dollar” run. We can say with some reasonable assurance there was one in early December, as well as one centered on October 15. They seem to be increasing in intensity and now reach, penetrating deeper into the bowels of the “dollar” system as well as taking down central banks with each successive wave.

As I wrote, again, this morning:

The higher currency fix signals that whatever great “dollar” run hit the China funding markets this week may have passed – even if only temporarily. In short, the actions of the PBOC, seen in light of what was a convertibility mini-crisis, a “run” of sorts, make sense where the yuan fix as some kind of “stimulus” in devaluation does not (or is at least far too inconsistent to be explanatory). The PBOC held the yuan steady to a near plateau for five months hoping for cessation of “dollar” pressure, but, like a coiled spring, it only intensified until there was no holding back anymore.

It will be interesting once S&P updates the leveraged loan index to see how much effect and maybe devastation was experienced there during this run. For now, it seems today as if the acuteness has abated and calm has been restored.

That does not mean, however, that all this is over; far from it. These tremors are warnings that the “dollar” system’s decay is reaching critical points. The mainstream will tender that this is really no big deal, just a tantrum of spoiled markets unwilling to easily treat the coming end of ZIRP and accommodation; that is simply and flat out false. There is a systemic liquidity problem that is and has been fatal, exposed to a greater degree by the continued withdrawal of eurodollar bank participation – the real “printing press.”

In a credit-based monetary system neither the economy nor its ultra-heavy financial component can move forward without ever-growing financialism; dark leverage and all that. There has been a continuous withdrawal dating back to, again, August 2007, but met with amplifications first in 2011, again in the middle of 2013 and then last year. This is not policy but a total systemic reset, as “money dealing” activities have never been settled this entire time. The dealer network simply withdrew starting in August 2007 with central bank balance sheets taking up the slack, belatedly as usual which is why there was a panic and crash. Dealers are again removing what little presence they have left but central banks seem totally unaware that that is the case, and that there is really nothing left for “money” intermediation upon that and their withdrawal.

I wrote back in May upon this very topic, as some very good and smart people, Perry Mehrling and Zoltan Pozsar, were attempting to gameplan the coming monetary shift. My view hasn’t changed, namely that the transition will not be a transition at all, but a potentially awaiting systemic decapitation:

I personally find way too much complacency in blindly believing that going from B to C will be only a minor inconvenience. It would be dangerous even under the circumstances where the system shifted from the dealers to the Fed and back to the dealers, with an infinite series of potential dangers even there. But to undertake a total and complete money market reformation from dealers to the Fed to money funds? There are no tests or history with which to suggest this is even doable under current intentions. Poszar and Mehrling’s contributions more than suggest that difficulty, but I think that still understates whether or not we ever get that far.

This latest “dollar” episode has continued to bear that out. How much further will it go before central banks wake up and see that their fantasy of a recovery and “resilient” financial system was a now-eight year old lie? That is, of course, a rhetorical question as they will not act until all is over. That is the problem, because this hollowed-out global “dollar” is supporting, badly, the main bubble, so the penetration into the corporate space is a highly unwelcome development (though welcome in the long run sense of actual and helpful balance) as this remains awaiting resolution upon increasingly unstable circumstances:

ABOOK June 2015 Bubble Risk Subprime to Junk Lev Loans CLOsABOOK June 2015 Bubble Risk Eurodollar Standard2

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    Half of the 41 fracking companies drilling for shale oil and gas in the US will be dead or sold by year-end amid steep crude price declines, Bloomberg reports.  An executive with Weatherford International Plc said slashed spending by oil companies has put much of the US fracking industry at risk.…
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Crash is coming ? :: McDonald’s Closing Hundreds of Stores in US, Asia After Losses

The fast food chain is targeting 700 poor performing restaurants for closing this year, according to a McDonald’s news release in which it reported losses not only in the United States, but in Europe and Asian as well.

First quarter comparable sales in the United States decreased 2.6 percent and operating income for the quarter fell by 11 percent, according to the company. First quarter comparable sales in Europe declined 0.6 percent while operating income tumbled 20 percent.

“APMEA’s first quarter comparable sales decreased 8.3 percent primarily due to the impact of prolonged, broad-based consumer perception issues in Japan, along with negative but improving performance in China,” said McDonald’s about its Asia market. “For the quarter, APMEA’s operating income declined 80 percent … due to strategic restaurant closings and other charges and negative operating performance in Japan and China.”

Bloomberg Business reported that McDonald’s Holding Co. in Japan would likely lose $318 million this year and sales were expected to drop 10 percent. Along with the store closing in Japan, the company had hoped to revamp 2,000 others over the next several years.

McDonald’s Holding president Sarah Casanova said she would take a 20 percent pay cut over the next six months and other directors would take 15 percent salary cuts in the transition as 100 jobs would be lost in Japan.

Time magazine reported that while the 700 store closings is a small percentage of the roughly 32,500 restaurants McDonalds operates globally, it shows that the fast food king is serious about aggressively taking steps about turning around its fortunes and staying No. 1.

“As the world’s leading restaurant company, we are evolving to be more responsive to today’s customer,” said Steve Easterbrook, McDonald’s president, adding that more information will be shared about the restaurants turnaround plans on May 4.

“McDonald’s management team is keenly focused on acting more quickly to better address today’s consumer needs, expectations and the competitive marketplace. We are developing a turnaround plan to improve our performance and deliver enduring profitable growth,” said Easterbrook

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    The price of iron ore has been crashing as well. It is down 35 percent in the last nine months, and David Stockman believes that this is because of a major deflationary crisis that is brewing in China… There is no better measure of the true contraction underway in China…
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  • 67
    (Source : http://qz.com/486476/everything-youve-heard-about-chinas-stock-market-crash-is-wrong/ ) This week’s Chinese stock market implosion has been widely viewed as a reaction to the Chinese government’s devaluing the yuan on Aug. 11—a move many presume was a frenzied bid to lower export prices and strengthen the economy. This interpretation doesn’t stand up to scrutiny. First, Chinese…
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Keynesian central bankers will do almost anything to fight deflation and that ultimately this will lead to a global currency crisis in the near future.

 

During this 40+ minute interview, Jason asks Mish about interest rates and financial repression and if he thinks the Federal Reserve is trapped and can they meaningfully raise interest rates?

Mish says the Fed would probably never admit they are trapped and is probably too stupid to know they are basically trapped.

Jason and Mish discuss financial repression in the US, Japan, etc.

Next, Jason asks Mish about his recent article about the pension plan crisis developing in the US.

Mish and Jason discuss if asset price inflation is intentionally being done to help generate higher returns for pension funds?

After this, Jason asks Mish about asset price inflation, bubbles and where Mish still sees value in markets. Mish likes gold, gold miners, Japanese stocks most.

Jason asks Mish about the oil market and they discuss job losses because of the US shale oil bust is happening now even though oil may have bottomed.

Jason and Mish then talk about inflation, currency wars, deflation and currency pegs.

Mish says Keynesian central bankers will do almost anything to fight deflation and that ultimately this will lead to a global currency crisis in the near future.

To end the interview, Jason asks Mish about the SDR and if CHina wants the World Reserve Currency?

Mish says China doesn’t want the burden of the world reserve currency, at least not anytime soon.

 

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It is urgent that we make stopping attacks on schools a high priority.

Why is it that schools and schoolchildren have become such high-profile targets for murderous Islamist militants? The 147 students killed in an attack by the extremist group Al-Shabab at a college close to Kenya’s border with Somalia are only the latest victims in a succession of outrages in which educational institutions have been singled out for attack

In the past five years, there have been nearly 10,000 attacks on schools and educational establishments.

Next week will mark the first anniversary of the extremist group Boko Haram’s night-time abduction of 276 schoolgirls from their dormitories in Chibok, in Nigeria’s northern Borno state.

In the depraved minds of terrorists, each attack has its own simple logic; the latest shootings, for example, are revenge by Al-Shabab for Kenya’s intervention in Somalia’s civil war.

Until recently, we have done far too little to protect schools and prevent their militarization during times of conflict.

More recently, as more than 80 pupils in South Sudan were taking their annual exams, fighters invaded their school and kidnapped them at gunpoint.

In a year when there are more local conflicts than ever – and in which children have become among the first (and forgotten) casualties – it is urgent that we make stopping attacks on schools a high priority.

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    KPCB’s Mary Meeker presents the 2015 Internet Trends report, 20 years after the inaugural “The Internet Report” was first published in 1995. Since then, the number of Internet users has risen from 35 million in 1995 to more than 2.8 billion today. The 2015 report looks at key Internet trends…
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Weiqi Versus Chess

Using a universally relevant metaphor, Zbigniew Brzezinski, former National Security Adviser to US president Jimmy Carter, wrote in The Grand Chessboard (1997): “Eurasia is the chessboard on which the struggle for global primacy continues to be played.” China’s New Silk Road strategy certainly integrates the importance of Eurasia but it also neutralizes the US pivot to Asia by enveloping it in a move which is broader both in space and in time: an approach inspired by the intelligence of Weiqi has outwitted the calculation of a chess player.

The chronicle by Japanese writer Kawabata Yasunari (1899-1972) of an intense intellectual duel, translated in English as The Master of Go, contributed to the popularity of the game in the West, but Weiqi is a product of the Chinese civilization and spread over time in the educated circles of Northeast Asia. Kawabata, who viewed the Master as one of his favorite creations, knew that for China the game of “abundant spiritual powers encompassed the principles of nature and the universe of human life,” and that the Chinese had named it “the diversion of the immortals.”

In imperial China, Weiqi had the status of an art whose practice had educational, moral and intellectual purposes. In a Chinese version of the scholastic quadrivium, the mandarins had to master four arts, known as qin, qi, shu and hua. It was expected of the literati to be able to play the guqin (qin), a seven-stringed zither, but also to write calligraphy (shu) and demonstrate talent at brush-painting (hua).

The second artistic skill, qi, is a reference to Weiqi, a strategy game played by two individuals who alternately place black and white stones on the vacant intersections of a grid. The winner is the one who can control, after a series of encirclements, more territory than his opponent; one can translate Weiqi (围棋) as “the board game of encirclement” or “the surrounding game.”

For centuries, literati have been fascinated by the contrast between the extreme simplicity of the rules and the almost infinite combinations allowed by their execution.

Traditionally, the game was conceptualized in relation to a vision of the world. In the early 11th-century Classic of Weiqi in Thirteen Sections, arguably the most remarkable essay on the topic, the author uses notions of Chinese philosophy to introduce the game’s material objects: the stones “are divided between black and white, on the yin/yang model… the board is a square and tranquil, the pieces are round and active.” In the Classic of Weiqi, the famous Book of Changes (Yi Jing), which presents the cosmology of Chinese antiquity, is quoted several times.

The game, “a small Tao,” was so popular that it generated obsessive attitude. Addiction to Weiqi was considered by the Chinese philosopher Mencius (372-289BC) one of the five types of unfilial behavior. Through the centuries, the game remained an important element of the Chinese society. Ming dynasty painter Qian Gu (1508-1578) realized an exquisite masterpiece when, in a mood of ease and poise, he portrayed A Weiqi Game at the Bamboo Pavilion, where the breeze, water and young maidens revolve around the circulations of black and white stones. One of the famous set of 12 screen paintings from the Emperor Yongzheng period (1678-1735) portrays an elegant and refined lady sitting by a Weiqi board.

http://www.huffingtonpost.com/david-gosset/weiqi-versus-chess_b_6974686.html

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