What a ride the beginning of the year has been so far. As we warned in our year end and 2019 outlook, the equity markets were most likely set up for some bottom pickers to step in and show their support out of the gates.
First of all, we would like to take a minute to remember all those that lost their lives some 17 years ago today. We will remember that day for quite some time, in fact it was on this day, a sunny crisp Tuesday morning that our phone lines went down to our trading partners inside One World Trade Center at Cantor Fitzgerald. We knew right there and then that something was up and we watched it unfold right before our eyes. Being on the floor of the CBOT, we evacuated and left the city for fear that we might be targeted next. We will never forget those and their families that were so tragically affected that fateful day and we will acknowledge their memorial this time every year for as long as we can.
Just a quick note this week on a few of the things that stood out to us. Before we delve into the markets, we want to note that we lost someone special this week and our time has been devoted to celebrating a life long lived dedicated to helping those in need on Chicago’s west side. For nearly 60 years this man dedicated his life to medicine, surgery and the city in which he loved. He was inspired to come here after the US Army liberated his country and from then on, he knew he had a much larger purpose in life. That purpose, was to give back all he could, when he could and at any cost, he will be missed by many.
So let’s get to it, what did we learn over the past week? We were informed by Intel that its computer chips were affected by a bug that makes them vulnerable to hacking. All computers with Intel chips from the past 10 years are affected. Considering that computer chips are basically the backbone and brain behind everything electronic including the entirety of the internet itself, this should be very alarming news. We can’t say that we are surprised, we have said in many past writings that the internet itself will have to adapt to these internal threats. Not to mention the internet security threats that future quantum computing presents. To say that this news out of Intel is alarming, is quite an understatement and it’s why the future of technology will need to be completely and openly discussed by all major stakeholders. This will take a collaborative effort, one by which profits will need to be set aside for the greater good. Whether or not this can be achieved is another thing, but the viability of the internet, the Internet of Things and Artificial Intelligence comes completely into question now. Intel’s stock price barely fell 5% and why should it, if these things need to be replaced, that means more sales and of course no rebates.
Also out this week the AP reported that the FED projects $80.2 billion in remittance back to the Treasury Dept. Here is a chart of the last decade in remittance. As you can see the FED has paid back billions to its enabler, is it safe to say this is like a drug kingpin and his pushers…maybe that’s too harsh…Anyway the charts show 3 years in a row of declining remittance and one thinks we can just continue to raise rates, can you imagine this levered behemoth and its Dv01 crushing leverage if equities turn and interest rates rise?
As usual we comb the globe in search of pertinent information that you may otherwise, never have been exposed to. Information that we can read and decipher in order to bring you the type of research you have come to expect from us, out of the box and certainly out of the ordinary. Anyway this first batch is from a recent piece from Amundi Asset Mgmt, a subsidiary created by Credit Agricole and Soc Gen. This recent piece they put out highlights, how important the ECB has been in soaking up European government debt and thus artificially keeping rates extremely low. This mechanism has become the defacto methodology of choice by our QE frenzied central banks. We have talked at length in prior letters how this drives down long term interest rates, drives up the nominal price of assets and in turn allows for otherwise defunct and broke corporations and governments themselves to refinance their way back to solvency. You see we didn't use the term health, because the solutions the central banks have used is anything but a cure, but rather a placebo to mask the true and inherent problem, DEBT. As many have stated before, only Keynesians think you can solve a debt problem with more debt and obviously since all fiat money is also nothing more than debt, well, you really aren't fixing anything then are you?