Ron Paul on the Right to Life, PPI Climes, Prolonging the Inevitable, Chavez Ready to Naitonalize that Old Relic

Two nights ago, Ron Paul was on Piers Morgan Tonight and discussed among various things his blackballing by the media and his position of being totally pro-life:

Now Paul presents a very interesting argument here that I must admit, I have never thought of.  So basically if a pregnant woman is driving and is hit by an oncoming car and dies along with her unborn baby, why is the driver who hit her charged with murdering two people?  Paul also asks, because of his doctoral experience, that why is it considered murder when he is operating on a pregnant woman and just so happens to kill the unborn child somehow.  Both questions come down to the ultimate question of why is a woman not charged for murder when having an abortion when the driver and doctor are?

These are very important questions.  Whatever side of the pro-life, pro-choice debate you are on, our current system of laws is incredibly contradictory when it comes to this issue.  If one were to argue that a woman has a right to get an abortion because the child is somehow her property, than does that justify her killing him/her outside of her body?  Personally, I have always had an issue with the abortion question.  It all comes down to when property rights are designated to the fetus.  That specific moment has never been clear to me so I have strayed away from judging accordingly.  Paul brings up some very interesting points though that really challenge the status quo of how our legal system deems an unborn child's death as murder.

Now on to less theoretical issues of life and rights, let's take a look at the new Producer Price Index numbers:

In July, the advance in the finished goods index was led by prices for finished 

goods less foods and energy, which rose 0.4 percent. Also contributing to higher 

finished goods prices, the index for finished consumer foods increased 

0.6 percent. By contrast, prices for finished energy goods declined 0.6 percent.

Here are the 12-month changes in producer prices since the start of 2011:
Jan    3.6
Feb   5.4
Mar   5.6
Apr   6.8
May  7.3
Jun    7.0
Jly    7.2

Hmmmm, doesn't look like an economic slow down to me.  How lagging this data is when it comes to macro-econ trends, I don't know but will surely find out soon.  The whole issue of whether we are entering a double-dip recession (stupid terminology seeing as how we never got out of the original downturn) or an inflationary boom is all the rage right now.  David Rosenberg, whom I respect, is betting on the former:

• Challenger layoffs have surged 80% in the past three months. That will lead to higher jobless claims in the near-term.


• Consumer buying intentions for big-ticket items has sagged to recession levels. Watch the savings rate in the next six months — this will be key to the macro outlook.


• Productivity has declined for two straight quarters and actually, unless companies wilfully want their margins to implode, will soon respond by shedding labour input.


• This already goes down as the weakest recovery on record despite unprecedented policy stimulus. Every dollar of balance sheet expansion at the Fed and the Treasury since the beginning of 2009 has generated 80 cents of incremental GDP gains. Not only is that a pitiful multiplier but now that there is no more stimulus, it is a legitimate question as to how an economy that only operated on policy steroids for the past two-and-change years is going to perform.


• There is no doubt that the economy is not yet contracting, but the debate is whether it will start to by year-end. The withdrawal of stimulus is feeling like a policy tightening. And after coming off a mere 0.8% annual rate of gain in GDP so far this year, the question is how the financial shock since mid-year in the form of higher debt levels and equity cost of capital is going to impact an already near-stagnant economy.


• The data on a three-month basis are following a classic pre-recession pattern and so is the stock market. Only three times in the past did the S&P 500 go down as much as it has without a recession ensuing. Market signals are important and this is what most economists missed in 2007. The 5-year note yield at 0.93% is a tell-tale sign — and is negative in real terms. Even with the speculative grade default rate falling in July to 2.3% from 1.9%, spreads are 150 basis points wider now than they were a month ago.


• Do these economists realize that S&P financials are down 25% from this year's highs? Can they explain how this fits into their forecast? The economy can hardly grow without credit unless it receives ongoing doses of government support, which for now is no longer forthcoming. The bank stocks are down more from their early highs than they were from January to August 2007 when the downturn was right around the corner.


• In plain-vanilla manufacturing inventory cycles, recessions are typically separated by five years, sometimes even longer as we saw in the 1980s and 1990s. But in a balance sheet/deleveraging cycle, recessions come more quickly — every two-to-three years. That puts late 2011/early 2012 in the spotlight. The imbalances in housing and debt were not fully resolved in the last recession, unfortunately enough (there is a nifty article on page A2 of today's WSJ, which cites Zillow research showing that only one-third of the 130 housing markets across the country can be considered "undervalued"). In a vivid sign that housing is no longer responsive to interest rates; mortgage applications for new purchases cratered 10.1% in the August 12th week. They have declined now for three of the past four weeks and are at the lowest level since July 2010.


• In a sign that households are concentrating more on getting their financial conditions into better shape than making that additional debt-financed purchase, the rate of late credit card payments fell to a 17-year low in the second quarter. Of course that is good news for the future, but going on a diet is never easy over the intermediate term (take it from me). The U.S. consumer is on a debt-reduction plan, having taken the aggregate level of liabilities down $50 billion in Q2. If we're not mistaken, Wal-Mart had some pretty cautious things to say about the U.S. consumer yesterday and we see that Dell, having missed its estimates today, also discussed that it is seeing a lack of "confidence" in "both corporate and household sectors" and "uncertain demand" as it cut its guidance for the year.


• Core Europe is stagnating and the Asian economy is cooling off. The Q2 contraction in Hong Kong GDP was the canary in the coal mine; Chinese industrial production contracted 0.4% MoM (based on a seasonally adjusted basis calculated by Haver Ana lytics) in July as well. We always said that Korea is important to watch because of its global export exposure, and with this in mind we recommend that you read Global Woes Land a Punch in Korea on page C5 of the WSJ. This bodes ill for the U.S. export sector. Also take note that the sharp slowing in core Europe is spreading through the entire continent — have a look at Slowdown Spreads to Central Europe on page 3 of today's FT.


• We have to understand that recessions are part of the business cycle. There is no reason to be fearful. Just be prepared. Hedge funds that are long high- quality, non-cyclical companies with strong balance sheets and dividend growth and yield attributes while being short small-caps that are highly cyclical and expensive is a money-making strategy in a recession. Hybrids with low equity correlations and BB-like yields, corporate bonds in defensivesectors with a visible cash-flow stream and a pervasive focus on energy, raw food, and gold — that is the ideal portfolio in an environment like this (as far as the food theme is concerned, go to page Cl of the WSJ and have a read of Chinese Hunger for Corn Stretches Farm Belt).


• Finally, if you're looking for the next shoe to drop, it may very well be in U.S. commercial real estate. We highly urge that you have a look at REITs Losing Haven Appeal on page C6 of the WSJ as well as Buyers Wary of Building Bubble on Cl (institutional investors are starting to back away from what appears to be an oversupplied and overpriced commercial property market in several major cities).

Compelling evidence yes, but money growth numbers say otherwise.  As always, time will tell.

Speaking of money printing, check out this neat Bloomberg graph on the failure of BOJ at devaluing the yen:

Ahh, if only I could attract the kind of love from girls that exporters attract from central banks, I would be swimming in women.  The chart clearly shows that Japan's recent efforts to keep the yen devalued will be, judging by previous efforts, futile.

The impeccable Charles Hugh Smith has another nice chart on the inevitably of failure when it comes to currency devaluation, U.S. version this time:

Here is a comparison of the Dow to the Nasdaq during that great period of prosperity known as the Great Depression:

Bernanke can print as much as he want, but mother nature will run its course eventually.

I will end with some good news for gold bugs, looks like Hugo Chavez has decided to push the price of gold even higher, via Wall Street Journal:

CARACAS—President Hugo Chávez said Wednesday he planned to take over Venezuela's largely underdeveloped gold mining industry in an attempt to boost international reserves.
The populist leader has already nationalized banks, telecommunications, oil fields, the power sector, and hundreds of thousands of acres of farmland, making Wednesday's move unsurprising.
Speaking on state television via telephone, Mr. Chávez said he would introduce a new decree in the coming days to put exploration and extraction of gold into the government's hands. It will be "a decree to take the gold sector," which still remains in the hands of a "mafia and smugglers," he said.

It turns out the black market sale of gold in Venezuela is quite the fruitful business:

Venezuela's gold mining industry has not played a mayor role in the country's economy. Although Venezuela is believed to have Latin America's largest gold reserves, the country's oil industry has garnered most of the attention. As a result, Venezuela's gold fields, which are in jungle areas close to the Brazilian border, have been mostly dominated by small, illegal wildcat producers.
"It's the Wild West," said Moisés Naim, a former Venezuelan trade minister. "There are no police, roads, or authority. The industry is dominated by smugglers."

If this so called illegal gold mining is shut down, look for a decrease in supply to the world market unless Chavez is so much of an idiot that he actually sells state-mined gold.  Turns out, he is doing the smart thing and is having his central bank accumulate gold already:

The move comes one day after documents reviewed by The Wall Street Journal showed that the Venezuelan government planned to transfer billions of dollars in cash reserves held abroad to banks in Russia, China and Brazil and tons of gold from European banks to its own central bank vaults. The documents say the South American country aims to move 211 tons of gold it keeps abroad and values at $11 billion to the Central Bank in Caracas, where the government keeps its remaining 154 tons of bullion.

Must be nice to have full control over that much money.

Robert Wenzel is speculating that Chavez's days are numbered:

Chavez has recently been undergoing treatment for what many suspect is cancer. Talk in certain parts of D.C. is that the CIA has slowly exposed him to very toxic, cancer causing materials.

Not sure on the accuracy of this claim, but it wouldn't be surprising if it turned out to be true.  If you can say one thing about conspiracy theories, they sure make the day interesting.

Update- Is former director of the Office of Management and Budget David Stockman an Austrian?  See this interview with Yahoo Daily Ticker:

Here are some quotes:

"The Fed announced last week 0 interest rates through 2013, that's 4 years of zero cost overnight money, a screaming invitation to speculation into the carry trade that is utterly destroying our capital markets."

"...the fact is the Fed is the number one problem holding back this economy, punishing savers, savaging low income people trying to buy food, or energy, or fuel.."

"Ron Paul all along has been the only member of Congress who really understands the fundamentals of the monetary system and what the central bank should and shouldn't be doing..and understands that...QE1, QE2, zero interest rates is making the capital market dishonest, corrupt, rigged...the capital market can't function to give price signals to what risk is and to what various kinds of fixed income instruments ought to trade at if the Fed is in there day in and day out buying this, selling that...."

"What (Bernanke) is doing is making it worse...this economy doesn't need any more debt...the purpose of low interest rates is to encourage people to borrow, that's wrong, we should be encouraging people to save..."

There is some talk in there about how the Fed benefits the banks and how taxes need to be raised to fight the deficit.  Obviously I disagree with the latter, but Stockman is right on, interest rates need to rise, even if it means another downturn.

Matt Taibbi has a great article in Rolling Stone this week on the revolving door between S.E.C., Wall Street, and various coverups:

That, it now appears, is exactly how the Securities and Exchange Commission has been treating the Wall Street criminals who cratered the global economy a few years back. For the past two decades, according to a whistle-blower at the SEC who recently came forward to Congress, the agency has been systematically destroying records of its preliminary investigations once they are closed. By whitewashing the files of some of the nation’s worst financial criminals, the SEC has kept an entire generation of federal investigators in the dark about past inquiries into insider trading, fraud and market manipulation against companies like Goldman Sachs, Deutsche Bank and AIG. With a few strokes of the keyboard, the evidence gathered during thousands of investigations – “18,000 … including Madoff,” as one high-ranking SEC official put it during a panicked meeting about the destruction – has apparently disappeared forever into the wormhole of history.
Under a deal the SEC worked out with the National Archives and Records Administration, all of the agency’s records – “including case files relating to preliminary investigations” – are supposed to be maintained for at least 25 years. But the SEC, using history-altering practices that for once actually deserve the overused and usually hysterical term “Orwellian,” devised an elaborate and possibly illegal system under which staffers were directed to dispose of the documents from any preliminary inquiry that did not receive approval from senior staff to become a full-blown, formal investigation. Amazingly, the wholesale destruction of the cases – known as MUIs, or “Matters Under Inquiry” – was not something done on the sly, in secret. The enforcement division of the SEC even spelled out the procedure in writing, on the commission’s internal website. “After you have closed a MUI that has not become an investigation,” the site advised staffers, “you should dispose of any documents obtained in connection with the MUI.”

There are many more stories in the article about former S.E.C. employees neglecting to prosecute and then being hired by the same firms they were supposed to prosecute.  Big government in bed with big business at its finest.  Check out this disturbing story:

SAC has long been accused of a variety of improprieties, from insider trading to harassment. But no charge in recent Wall Street history is crazier than an episode involving a SAC executive named Ping Jiang, who was accused in 2006 of enacting a torturous hazing program. According to a civil lawsuit that was later dropped, Jiang allegedly forced a new trader named Andrew Tong to take female hormones, come to work wearing a dress and lipstick, have “foreign objects” inserted in his rectum, and allow Jiang to urinate in his mouth. (I’m not making this up.)

Sounds more like a frat than an investment bank, though there is hardly any difference between the two anymore.