This Changes Nothing

What a dumb reason to sell off. Israel began a ground invasion and Russia probably smoked an airliner full of children. So what, I ask you, outside of the obvious moral quandaries posed there?

How does this effect US business?

If I thought for a minute the US was about to go to war, this might change something. But we’re not. Look at our chief executive – the man ate barbecue and “had a conversation” with Putin. Is that the posturing of a man itching to enter a war (or possessing a spine)?

I say to you, “no”.

These global events are fascinating to watch, and I’ve been having quite the time on Twitter watching Vox make complete asses of themselves.

But I seriously question any lasting impact either of this has on the US stock market.

A Global Power Shift Is Emerging

Short term cautions not withstanding, we are on the precipice of something great.

The entire structure of the global economy is shifting, slightly and slowly. But like all great change, the most striking of the movement comes all at once, at the end.

The United States is driving this assault of the balances of power, globally, as the energy revolution progresses on our shores. This country is set to become the biggest oil producer in the world – and we are now slowly removing the export restrictions that are the last remaining barrier to this mighty end.

This isn’t just about US trade balances and deficits. Those numbers games matter, but they always matter less than you think.

This game is about power. Oil has been the source of power to our enemies for too long. Russia and the Middle East have fed well on global consumption of this product, erecting their cartels around the flow oil to global industry. It has made them powerful and a threat.

The move by the US to become the world’s largest producer of oil and gas can be viewed through a different lens than financial gain alone: this is also going to completely upend our adversaries. What wars and weapons and diplomacy and cooperation could not possibly have accomplished, given the entrenched interests we faced, this one might push on our part will quickly bring about.

This is a once in a lifetime opportunity. You must get invested in it, and stay invested in it. All US leadership sees the goal, and no one objects to it. The days of getting beat about by monarchies in Saudi Arabia, needing to cut backroom deals that undermine our own morals with foreign militant groups, having to sit through endless meetings while Russian oligarchs threaten our allies with gas supply shortages…these days are coming to an end.

As the US increasingly becomes energy independent, the argument to even have relations with half these villains becomes non sequitur. We can marginalize them while circling around our true allies and real friends.

I can’t see everything that is going to come from this. Naturally US power will follow. And the North and South American continents should improve, swinging towards democracy and capitalism. Outside of that, while I think US energy independence is a good thing, I wouldn’t be surprised if war also follows. Revolutions surely, but also open war between foreign, former energy exporters who find themselves being boxed into a corner. The Saudi’s days are surely numbered, in particular.

My bet is that Russia will not change much, but they will also have to cut less lucrative deals with China to make it. So at least they will be a less powerful, less interfering Russia. Good riddance there.

Suffice to say, this is unpredictability at its best. While I think I see the theme, I do not yet hear the notes. But I’ll take my chances with it anyway. The old order of things was repulsive. I won’t be crying any tears for OPEC, or for Russia.

A Few Thoughts On The EPA Regs

Considering the big reaction to these looming EPA regulations on how much sway they’ve already had on coal related investments, I thought I make a short list of my initial thoughts, after reading through this:

1) The real impact from these things is always grossly less than the exaggerated fear – take a look at the automotive companies being forced to raise fleet emissions. They hit those targets easy; it turns out, they already knew how to make more efficient cars, but were being lazy, not wanting to force implementation and get hazed by shareholders worried about cost. The automotive companies still seem pretty profitable right now. I’m guessing a 30% reduction from 2005 levels within three years means they probably already have some technological game plans in place to make it happen with minimal impact.

2) The EPA’s power here really relies on outcomes – if I’m wrong about (1), it will mark the beginning of a complete overhaul of the agency, leading to many many political hacks being dragged out by their hair to the gallows. The ability of the EPA to be the mini-crime syndicate it is, cutting backroom deals with Greenpeace, rests on their victims being small, disenfranchised minorities. If they mess this up and regular Americans feel the burn, it won’t matter who’s president.

3) Speaking of political power, this is basically the “GOP reelection act of 2014″ – since there are three years to go before we even see impact from this, that gives three years of conservatives being able the ram propaganda down the throats of already terrified Red state Democrats (and a few Blue ones). As if they needed the extra firepower…

4) The EPA’s rules seem to possibly interfere with State commerce rights – if you force a small state like Rhode Island to stay within a certain limit of carbon emissions and then let a New York keep a much higher output level, aren’t you basically extending competition restrictions against the small state to preserve the economy of the bigger? While I’m sure Illinois is just ecstatic with another layer of monopoly power, if I were a neighboring state looking to grow my own manufacturing sector to help ease the unemployment level, I’d probably come out swinging. I’m not about to sit down and read a 600 plus page load of trash like an EPA reg., but my guess is there are either loopholes in place to just dance around this, or else this thing is on thin ice. An executive branch agency isn’t going to withstand 46 out of 50 state governors directing state resources to put said agency on ice.

5) The Legislature is coming – after the GOP sweeps November, they will proceed to start ramming countermeasures down the Executive Branches throat. This is obvious and looming. Obama is not going to withstand that for two whole years. This and a dozen other of his measures will visit the dentist, for tooth extraction. The man is just not popular enough to construe a mandate.

6) Modern regulations are federal guarantees of record profits – no new coal companies are forming in this environment. At some point, isn’t that just a monopoly for coal companies already operating? Sure the small fries will all fold, but anybody with a billion dollar budget is going to love that. It’s basically a federal mandate to acquire more assets at fire sale prices through what I can only describe as state sponsored theft. Let’s look at other industries that were “harmed” by government regulations over the past five years. Banks were subjected to new regulations following the recession – they made record profits. The automotive companies were subject to new regulations following the fuel economy standards – they made record profits. Health insurance companies were subjected to the ACA regulations – they made record profits. Can anyone point me to an industry where entrenched interests didn’t make a boatload of money following being gifted what is basically a non-compete agreement in exchange for some regulations? I can’t think of any lately. There’s probably a good reason for this too; the federal government can’t be seen intentionally shuttering industries for what are clearly political reasons. So if they want to make changes to these industries, the cost is…record profits.

The main takeaway is, the government can’t just destroy the power supply for 40% of the grid. They don’t have anything up their sleeve here. I’m not scared of environmentalists at all…even when they worm their way into powerful agency positions way above their competencies. Check out the last 50 years of environmentalist history, then tell me one major success they’ve had at curbing emissions or conservation or rolling back human activity.

When I think of emissions reduction, I think of natural gas. The US energy sector has reduced US emissions more in 5 years than environmentalists have done in 50…which I guess isn’t hard when environmentalists have never demonstrated an ability to reduce emissions at all.

When I think of conservation, I think of presidencies like the end of George W Bush’s, setting aside huge swaths of land as part of legacy building, or state conservation mostly at the local level. There’s no indication that the Sierra Club has had any influence in those choices at all.

Most of recorded history is industry smacking down doomspitters and terrorsayers warning of humanities looming demise. Every time population hits a new modulo 1,000,000 milestone, new generations of fear mongers feel compelled to give us the good word, casually ignoring the endless masses of false warnings and pontifications issued before them (because you know, they’re so much smarter than their countless predecessors).

At this moment, I have no reason to believe that the EPA regulations will be anything less.

First The Good News, Then The Bad

Most of my portfolio is now solidly shrugging off Yellen’s slip of the tongue. Our good bankster friends over at JPMorgan said it best – Yellen is fresh and inexperienced, and she still needs to learn how to speak without actually saying anything.

It will come. It will come.

Despite my state of shock at watching Yellen crack the market like an egg yesterday, I didn’t react. I want to watch a few more days before I make a move, even if they should lose me money. With a +14% year going, I have buffer room.

Now, the good word here is that CCJ and BAS are both moving higher. I suspect HCLP will join in soon as well (that position can be rewarded a little breather, it’s come a long way). The energy themes are solid and intact.

The bad side of the coin is that fear/reality of higher interest rates is going to just ravish the REIT and associated housing space. Check out VNQ over a five day period, and you can almost sink the cracking point up with Yellen’s comments. My current position AEC is breaking down again this morning, and an old position MAA is following.

This has to be treaded carefully. If you’re juggling garbage like NLY, I’d say you’re one four day panic away from another round of 30% losses.

I’ve said well before today, back when I never imagined Yellen would spook interest rates higher, that I was interested in rebuying MAA. This is sort of a blessing in that regards. I’d venture a guess that long term damage to multifamily REITs from higher interest rates will hover somewhere between “negligible” and “not damaging, actually positive”.

But well before that point, there will probably be a lot of indiscriminate selling from emotionally driven fund managers. The climax of that, if it should materialize, is the buying opportunity.

Between then and now, it’s important to keep a wary eye on reform efforts to Fannie and Freddie. There’s been some “bipartisan chatter”. Mortgage origination is >70% dominated by the government backed mortgage giants, and the entire housing market is totally dependent on them. A poorly thought out reform effort could rain chaos. But there’s no sense even having a discussion about that just yet. First things first, interest rates.

Well That Ended Anticlimactically

Here I was thinking CCJ would go on an epic run, and instead it decided to reverse 4.6% on a lazy Friday afternoon.

On the plus side, it and my other main positions (BAS, AEC, HCLP) all seem to be resting just above the higher moving averages. I’m going to pretend like I care about TA for a minute and assume that means paved glory in my future, next week.

China sucks and I’m sitting around just praying PGJ gets assaulted. The BRIC thing is just really a load of garbage. They’ve been shoveling this shit to private retail money for twenty continuous years now; meanwhile, to this day, three of the above four letters in said acronym don’t even have primitive shareholder legal protections in place worth a damn.

Pathetic.

Putin is bringing down US drones and generally showing off now, as if the inability to feed and cloth his own people (or other such humiliating realities of that Russian Exceptionalism lifetstyle) were somehow forgettable next to the nostalgic grandeur of a grey haired, 62 year old man suffocating on his own bullshit.

Suffice to say, if Bush were still in office, Putin wouldn’t have the balls to be trying any of this. I know you Obama apologists will be leaping around like faggots now, whining at me for being “unfair”. What’s unfair is us living in this day and age and still needing to explain how incentives and behavior work to you stupid assholes. Choke on some humility coming off the trio of failures that are Obamacare, Foreign Policy, and the DOJ before you open your mouths in my comments section. Unless I’m mistaken, outcomes still matter more than pathetic excuses and “intent”.

The only one of the BRIC’s I would even look at is Brazil. Even there though, no need to get tangled up in the state owned populism. I’m content to just sit back, crack a beer, and watch Venezuela and Argentina burn to cinders.

I’m 25% cash, a little less cocky from this week, and certainly not up 14.5% anymore (though doing quite well).

Russia Threatens to Confiscate Foreign Owned Property

Well they went and did it now.

This is a bold move, and one that is sure to escalate things quickly. Think about how much has been put at stake trying to lift Russia out of the pit of communism, over the past two decades. Think of Goldman Sachs’ Blankfein making cross continental trips all through the ’90′s, setting up access for foreign investment into Russia’s economy.

The move is crazy, of course. If Russia started hard confiscation of assets, you’re looking at a basic replay of what happened when they defaulted on their bonds in ’98. Economic stagnation, a plunge back into hard poverty, and all. Worse, even.

The trouble is, the Russian’s are just crazy enough not to care. The ’98 default itself didn’t make any sense. It was a clear blunder – to everyone – that would only hurt Russia and those who were trying to help support the country.

And they did it anyway. And the whole time, Russia’s “leadership” looked on with straight backs and the visage of complete confidence.

Threatening to confiscate assets to get your way is a lot like threatening to shoot yourself in the face. Sure it splatters the audience in blood and inconveniences them…but you’re the one that’s dead, idiot. Yet, here we are, watching “new” Russia follow in the footsteps of “old” Russia – plus Argentina and Venezuela – and you can’t help but wonder, do the people clutching the capacity to throw this switch know something that we don’t?

Like that keeping Russia-at-large somewhere just between the stone age (fighting polar bears with empty vodka bottles) and Flint, MI is personally the best outcome for them?

There’s a small part of me that’s tempted to jump around and start hunting for deals; scouting around for people willing to take $0.50 on the dollar for their now very much imperiled Russian stakes. But that small part is quickly squelched by the much larger part of me that wants nothing to do with gangster thugs running a cross between a cult and a crime syndicate.

This Changes Nothing

What a dumb reason to sell off. Israel began a ground invasion and Russia probably smoked an airliner full of children. So what, I ask you, outside of the obvious moral quandaries posed there?

How does this effect US business?

If I thought for a minute the US was about to go to war, this might change something. But we’re not. Look at our chief executive – the man ate barbecue and “had a conversation” with Putin. Is that the posturing of a man itching to enter a war (or possessing a spine)?

I say to you, “no”.

These global events are fascinating to watch, and I’ve been having quite the time on Twitter watching Vox make complete asses of themselves.

But I seriously question any lasting impact either of this has on the US stock market.

A Global Power Shift Is Emerging

Short term cautions not withstanding, we are on the precipice of something great.

The entire structure of the global economy is shifting, slightly and slowly. But like all great change, the most striking of the movement comes all at once, at the end.

The United States is driving this assault of the balances of power, globally, as the energy revolution progresses on our shores. This country is set to become the biggest oil producer in the world – and we are now slowly removing the export restrictions that are the last remaining barrier to this mighty end.

This isn’t just about US trade balances and deficits. Those numbers games matter, but they always matter less than you think.

This game is about power. Oil has been the source of power to our enemies for too long. Russia and the Middle East have fed well on global consumption of this product, erecting their cartels around the flow oil to global industry. It has made them powerful and a threat.

The move by the US to become the world’s largest producer of oil and gas can be viewed through a different lens than financial gain alone: this is also going to completely upend our adversaries. What wars and weapons and diplomacy and cooperation could not possibly have accomplished, given the entrenched interests we faced, this one might push on our part will quickly bring about.

This is a once in a lifetime opportunity. You must get invested in it, and stay invested in it. All US leadership sees the goal, and no one objects to it. The days of getting beat about by monarchies in Saudi Arabia, needing to cut backroom deals that undermine our own morals with foreign militant groups, having to sit through endless meetings while Russian oligarchs threaten our allies with gas supply shortages…these days are coming to an end.

As the US increasingly becomes energy independent, the argument to even have relations with half these villains becomes non sequitur. We can marginalize them while circling around our true allies and real friends.

I can’t see everything that is going to come from this. Naturally US power will follow. And the North and South American continents should improve, swinging towards democracy and capitalism. Outside of that, while I think US energy independence is a good thing, I wouldn’t be surprised if war also follows. Revolutions surely, but also open war between foreign, former energy exporters who find themselves being boxed into a corner. The Saudi’s days are surely numbered, in particular.

My bet is that Russia will not change much, but they will also have to cut less lucrative deals with China to make it. So at least they will be a less powerful, less interfering Russia. Good riddance there.

Suffice to say, this is unpredictability at its best. While I think I see the theme, I do not yet hear the notes. But I’ll take my chances with it anyway. The old order of things was repulsive. I won’t be crying any tears for OPEC, or for Russia.

A Few Thoughts On The EPA Regs

Considering the big reaction to these looming EPA regulations on how much sway they’ve already had on coal related investments, I thought I make a short list of my initial thoughts, after reading through this:

1) The real impact from these things is always grossly less than the exaggerated fear – take a look at the automotive companies being forced to raise fleet emissions. They hit those targets easy; it turns out, they already knew how to make more efficient cars, but were being lazy, not wanting to force implementation and get hazed by shareholders worried about cost. The automotive companies still seem pretty profitable right now. I’m guessing a 30% reduction from 2005 levels within three years means they probably already have some technological game plans in place to make it happen with minimal impact.

2) The EPA’s power here really relies on outcomes – if I’m wrong about (1), it will mark the beginning of a complete overhaul of the agency, leading to many many political hacks being dragged out by their hair to the gallows. The ability of the EPA to be the mini-crime syndicate it is, cutting backroom deals with Greenpeace, rests on their victims being small, disenfranchised minorities. If they mess this up and regular Americans feel the burn, it won’t matter who’s president.

3) Speaking of political power, this is basically the “GOP reelection act of 2014″ – since there are three years to go before we even see impact from this, that gives three years of conservatives being able the ram propaganda down the throats of already terrified Red state Democrats (and a few Blue ones). As if they needed the extra firepower…

4) The EPA’s rules seem to possibly interfere with State commerce rights – if you force a small state like Rhode Island to stay within a certain limit of carbon emissions and then let a New York keep a much higher output level, aren’t you basically extending competition restrictions against the small state to preserve the economy of the bigger? While I’m sure Illinois is just ecstatic with another layer of monopoly power, if I were a neighboring state looking to grow my own manufacturing sector to help ease the unemployment level, I’d probably come out swinging. I’m not about to sit down and read a 600 plus page load of trash like an EPA reg., but my guess is there are either loopholes in place to just dance around this, or else this thing is on thin ice. An executive branch agency isn’t going to withstand 46 out of 50 state governors directing state resources to put said agency on ice.

5) The Legislature is coming – after the GOP sweeps November, they will proceed to start ramming countermeasures down the Executive Branches throat. This is obvious and looming. Obama is not going to withstand that for two whole years. This and a dozen other of his measures will visit the dentist, for tooth extraction. The man is just not popular enough to construe a mandate.

6) Modern regulations are federal guarantees of record profits – no new coal companies are forming in this environment. At some point, isn’t that just a monopoly for coal companies already operating? Sure the small fries will all fold, but anybody with a billion dollar budget is going to love that. It’s basically a federal mandate to acquire more assets at fire sale prices through what I can only describe as state sponsored theft. Let’s look at other industries that were “harmed” by government regulations over the past five years. Banks were subjected to new regulations following the recession – they made record profits. The automotive companies were subject to new regulations following the fuel economy standards – they made record profits. Health insurance companies were subjected to the ACA regulations – they made record profits. Can anyone point me to an industry where entrenched interests didn’t make a boatload of money following being gifted what is basically a non-compete agreement in exchange for some regulations? I can’t think of any lately. There’s probably a good reason for this too; the federal government can’t be seen intentionally shuttering industries for what are clearly political reasons. So if they want to make changes to these industries, the cost is…record profits.

The main takeaway is, the government can’t just destroy the power supply for 40% of the grid. They don’t have anything up their sleeve here. I’m not scared of environmentalists at all…even when they worm their way into powerful agency positions way above their competencies. Check out the last 50 years of environmentalist history, then tell me one major success they’ve had at curbing emissions or conservation or rolling back human activity.

When I think of emissions reduction, I think of natural gas. The US energy sector has reduced US emissions more in 5 years than environmentalists have done in 50…which I guess isn’t hard when environmentalists have never demonstrated an ability to reduce emissions at all.

When I think of conservation, I think of presidencies like the end of George W Bush’s, setting aside huge swaths of land as part of legacy building, or state conservation mostly at the local level. There’s no indication that the Sierra Club has had any influence in those choices at all.

Most of recorded history is industry smacking down doomspitters and terrorsayers warning of humanities looming demise. Every time population hits a new modulo 1,000,000 milestone, new generations of fear mongers feel compelled to give us the good word, casually ignoring the endless masses of false warnings and pontifications issued before them (because you know, they’re so much smarter than their countless predecessors).

At this moment, I have no reason to believe that the EPA regulations will be anything less.

First The Good News, Then The Bad

Most of my portfolio is now solidly shrugging off Yellen’s slip of the tongue. Our good bankster friends over at JPMorgan said it best – Yellen is fresh and inexperienced, and she still needs to learn how to speak without actually saying anything.

It will come. It will come.

Despite my state of shock at watching Yellen crack the market like an egg yesterday, I didn’t react. I want to watch a few more days before I make a move, even if they should lose me money. With a +14% year going, I have buffer room.

Now, the good word here is that CCJ and BAS are both moving higher. I suspect HCLP will join in soon as well (that position can be rewarded a little breather, it’s come a long way). The energy themes are solid and intact.

The bad side of the coin is that fear/reality of higher interest rates is going to just ravish the REIT and associated housing space. Check out VNQ over a five day period, and you can almost sink the cracking point up with Yellen’s comments. My current position AEC is breaking down again this morning, and an old position MAA is following.

This has to be treaded carefully. If you’re juggling garbage like NLY, I’d say you’re one four day panic away from another round of 30% losses.

I’ve said well before today, back when I never imagined Yellen would spook interest rates higher, that I was interested in rebuying MAA. This is sort of a blessing in that regards. I’d venture a guess that long term damage to multifamily REITs from higher interest rates will hover somewhere between “negligible” and “not damaging, actually positive”.

But well before that point, there will probably be a lot of indiscriminate selling from emotionally driven fund managers. The climax of that, if it should materialize, is the buying opportunity.

Between then and now, it’s important to keep a wary eye on reform efforts to Fannie and Freddie. There’s been some “bipartisan chatter”. Mortgage origination is >70% dominated by the government backed mortgage giants, and the entire housing market is totally dependent on them. A poorly thought out reform effort could rain chaos. But there’s no sense even having a discussion about that just yet. First things first, interest rates.

Well That Ended Anticlimactically

Here I was thinking CCJ would go on an epic run, and instead it decided to reverse 4.6% on a lazy Friday afternoon.

On the plus side, it and my other main positions (BAS, AEC, HCLP) all seem to be resting just above the higher moving averages. I’m going to pretend like I care about TA for a minute and assume that means paved glory in my future, next week.

China sucks and I’m sitting around just praying PGJ gets assaulted. The BRIC thing is just really a load of garbage. They’ve been shoveling this shit to private retail money for twenty continuous years now; meanwhile, to this day, three of the above four letters in said acronym don’t even have primitive shareholder legal protections in place worth a damn.

Pathetic.

Putin is bringing down US drones and generally showing off now, as if the inability to feed and cloth his own people (or other such humiliating realities of that Russian Exceptionalism lifetstyle) were somehow forgettable next to the nostalgic grandeur of a grey haired, 62 year old man suffocating on his own bullshit.

Suffice to say, if Bush were still in office, Putin wouldn’t have the balls to be trying any of this. I know you Obama apologists will be leaping around like faggots now, whining at me for being “unfair”. What’s unfair is us living in this day and age and still needing to explain how incentives and behavior work to you stupid assholes. Choke on some humility coming off the trio of failures that are Obamacare, Foreign Policy, and the DOJ before you open your mouths in my comments section. Unless I’m mistaken, outcomes still matter more than pathetic excuses and “intent”.

The only one of the BRIC’s I would even look at is Brazil. Even there though, no need to get tangled up in the state owned populism. I’m content to just sit back, crack a beer, and watch Venezuela and Argentina burn to cinders.

I’m 25% cash, a little less cocky from this week, and certainly not up 14.5% anymore (though doing quite well).

Russia Threatens to Confiscate Foreign Owned Property

Well they went and did it now.

This is a bold move, and one that is sure to escalate things quickly. Think about how much has been put at stake trying to lift Russia out of the pit of communism, over the past two decades. Think of Goldman Sachs’ Blankfein making cross continental trips all through the ’90′s, setting up access for foreign investment into Russia’s economy.

The move is crazy, of course. If Russia started hard confiscation of assets, you’re looking at a basic replay of what happened when they defaulted on their bonds in ’98. Economic stagnation, a plunge back into hard poverty, and all. Worse, even.

The trouble is, the Russian’s are just crazy enough not to care. The ’98 default itself didn’t make any sense. It was a clear blunder – to everyone – that would only hurt Russia and those who were trying to help support the country.

And they did it anyway. And the whole time, Russia’s “leadership” looked on with straight backs and the visage of complete confidence.

Threatening to confiscate assets to get your way is a lot like threatening to shoot yourself in the face. Sure it splatters the audience in blood and inconveniences them…but you’re the one that’s dead, idiot. Yet, here we are, watching “new” Russia follow in the footsteps of “old” Russia – plus Argentina and Venezuela – and you can’t help but wonder, do the people clutching the capacity to throw this switch know something that we don’t?

Like that keeping Russia-at-large somewhere just between the stone age (fighting polar bears with empty vodka bottles) and Flint, MI is personally the best outcome for them?

There’s a small part of me that’s tempted to jump around and start hunting for deals; scouting around for people willing to take $0.50 on the dollar for their now very much imperiled Russian stakes. But that small part is quickly squelched by the much larger part of me that wants nothing to do with gangster thugs running a cross between a cult and a crime syndicate.

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