Friday, May 30, 2014

Some Friday morning news

Here's some snarky Friday snark:

Bloomberg - pent demand suggests temporary setback. Quote:
The good news: Much of the decline was due to less inventory building that economists say can’t last. As a result, some are boosting second-quarter growth forecasts, with Morgan Stanley projecting a 4.2 percent gain.

Stockpiles grew at less than half the pace than in the final three months of 2013, lopping 1.6 percentage points off GDP while businesses cut back on investment.
Q1 GDP is quite obviously an extremely backward-looking indicator anyway, in which case there's no reason to worry about it; but isn't it funny that the people who have no clue what they're talking about seized on the headline number and never paid attention to inventories?

Coppola Comment - on liquidity hoarding and QE. Some thoughts on why QE has driven yields down, not up. Though this begs the question: why is cash being hoarded anyway? Can it really earn no return when invested in business? Can Apple really grow no faster than the yield payout on the UST10? Is it possible that nobody can identify areas to create economic growth? Or is it instead just that the financial elite who own the most trillions don't want to invest in the hard economy, and we're just seeing what happens when the rentiers successfully enslave the proletariat and then run out of proles to extract rent from?

NYT Upshot - Piketty bitch-slaps his critics for being ignorant morons. His critics at FT obviously never went to university.* If they had, they'd realize that if you're going to criticize your prof, you better have damn well read his paper, read it completely, and understood it, and that means reading the footnotes. The ignorant will think Piketty's just being a bitch; but actually, he's just admonishing a first-year Bro who's being a smartmouth without even having bothered to do the assigned reading. "Kid, you can open your mouth when you've finished your doctoral comprehensive. Til then shut up and let someone who knows what he's talking about teach you."

Reuters - hopes for Modi and India's sluggish economy. The problems are bigger than the Congress Party:
Arvind Panagariya, an economics professor at New York's Columbia University who is tipped to get an advisory role in the government, has called on the new administration to revamp the cumbersome tax regime and boost capital spending.

But that's easier said than done. States wield much of the power in approving projects, while only a quarter of approvals come from central agencies. High corporate leverage and rising bad loans at banks are also weighing on investments.

Stressed loans in India - those categorised as bad and restructured - total $100 billion, or about 10 percent of all loans. The debt-equity ratio of Indian firms, meanwhile, has hit a two-decade high of 97.9 percent, according to Nomura.
That last bit sounds like the structural crisis of an EM economy at the end of a secular EM bull market, doesn't it?

Barron's - gold miners' value destruction cycle being repeated. Hey lookie there - Cookie's ideas have hit the mainstream. Here's Citigroup ripping off The Legend:
Cuts to capex and exploration costs, and high grading, are helping margins near term. However, it is a double edged sword. The reason is that gold companies have to spend an increasing amount of capex just to fight a falling production trend and prevent a blow-out in unit costs. For example, the industry’s capex increased 7-fold between 2000 and 2013 (Figure 31). Yet, production decreased 10% and unit costs escalated at a CAGR of 12% p.a. The fall in production, and subsequently rise in unit costs, would have been significantly worse if capex budgets did not increase.

It is because of this that we caution that a slow-down in capex will invariably result in a fall in production (over time), which in turn will lead to a faster rise in unit costs. Whether or not they cut capex, we see both scenarios as bad for cash flow delivery and shareholder returns, longer term. Increasing head grades in order to boost near-term results (a practice that has become common over the past year) should also have detrimental effects longer term. There seems to be no easy way out.
Yeah, there is an easy way out. Production continues to decline while demand stays steady. When Whitey runs out of London Good Delivery to ship to China, the gold price starts moving back up and through $2000. As long as China and India don't fall into stagnation, the longer future is good for gold.

* - LSE doesn't count as "university".


  1. When i read the FT "exposé" i thought

    1) the world will sneer at Piketty
    2) he'll wait a few days
    3) he'll then eat the fuckers for breakfast

    So yup, called that one. And yup, you nail exactly why. Tis a very dangerous thing to wander into academia and draw conclusions from picking at arguments from the edges. Footnotes kill, because profs have had decades to read the body of work and know the moves. Try top-down analysis on a paper and you're just asking for trouble.

    1. Plus it's generally a bad idea to criticize any professor's central thesis. He will assume you're wrong and be snide about it, unless you happen to be world-renowned as smarter than him on the topic.

      Plus he's not just a professor, he's a French professor.