- We Are All Preppers Now
Damian McBride is the former head of communications at the British treasury and former special adviser to Gordon Brown, erstwhile Prime Minister of the U.K. Yesterday he tweeted some surprising advice in response to the plunge in global equities markets.;
Advice on the looming crash, No. 1: get hard cash in a safe place now; don't assume banks & cashpoints will be open, or bank cards will work.
Crash advice No. 2: do you have enough bottled water, tinned goods & other essentials at home to live a month indoors? If not, get shopping.
Crash advice No. 3: agree a rally point with your loved ones in case transport and communication gets cut off; somewhere you can all head to.
Evidently, McBride interprets the wipe-out of over $3 trillion in total global market cap during the three-day rout as a prelude to a much broader and deeper financial crash that will precipitate civil unrest.
Just like mid-October last year, the market howls; the Fed panics & puts the dummy back in; and we all pretend it's OK again. It's madness.
— Damian McBride (@DPMcBride) August 25, 2015
Every day the era of easy borrowing persists just means even more loans that won't be repaid when the real crash finally comes.
— Damian McBride (@DPMcBride) August 25, 2015
Today is just the stock market catching up with the terror over defaults that's been gripping the bond market for months.
— Damian McBride (@DPMcBride) August 24, 2015
According to McBride,
We were close enough in 2008 and what's coming is on 20 times that scale.
- Here's How Long Saudi Arabia's US Treasury Stash Will Last Under $30, $40, And $50 Crude
On Friday we explained why the most important chart in global finance may well be the combined FX reserves of Saudi Arabia and China plotted against the yield on the 10Y.
Here’s the reason that graphic is so critical: Saudi Arabia and China are sitting on the first and third largest stores of reserves, respectively, and if these two countries continue to liquidate those reserves, it will amount to “reverse QE” or, “quantitative tightening” as Deutsche Bank calls it.
For Saudi Arabia, the FX reserve pressure comes courtesy of the deathblow the country dealt to the petrodollar system late last year.
In other words, the pain is largely self-inflicted as the kingdom is determined to “preserve market share” by bankrupting US shale drillers. The attendant decline in oil revenue has resulted in a fiscal deficit on the order of 20% of GDP which, in the absence of sharply higher oil prices must either be financed by drawing down reserves or else through the bond market because between the war in Yemen (which escalated meaningfully on Thursday) and the necessity of maintaining the status quo for a populace that’s become used to a certain level of stability and comfort, fiscal retrenchment is a decisively difficult task.
On Thursday, we got the latest data on Saudi Arabia’s FX reserves and, thanks to new debt, the burn rate slowed. Here’s Reuters:
The speed of decline in Saudi Arabia’s foreign reserves slowed in July after the government began issuing domestic debt to cover part of a budget deficit created by low oil prices, central bank data showed on Thursday.
The world’s largest oil exporter has been drawing down its reserves to cover the deficit. Net foreign assets at the central bank, which acts as the kingdom’s sovereign wealth fund, have been sliding since they reached a $737 billion peak last August.
But the latest data showed net foreign assets shrank only 0.5 percent from the previous month to 2.480 trillion riyals ($661 billion) in July, their lowest level since early 2013. They had dropped 1.2 percent month-on-month in June and at faster rates early this year.
In July, the government began selling bonds for the first time since 2007, placing 15 billion riyals ($4 billion) of debt with quasi-sovereign funds; this month it sold 20 billion riyals of bonds to banks.
The domestic debt sales appear to have reduced the need for the government to cover its deficit by drawing down foreign assets. Authorities have not publicly said how many bonds they will issue in future, but the market is expecting monthly issues of roughly 20 billion riyals through the end of 2015.
The foreign assets are held mainly in the form of foreign securities such as U.S. Treasury bonds – securities totalled $465.8 billion at the end of July – and deposits with banks abroad, which totalled $131.2 billion. The vast majority of the assets are believed to be in U.S. dollars.
And while taking on debt to offset the reserve burn is a viable strategy, especially when you’re starting from a debt-to-GDP ratio that’s negligible, the reserves are still at risk of running out, even if 50% of spending is financed in the debt markets.
Here’s more from BofAML on how long the Saudis can hold out under various price points for crude and assuming various mixes of debt financing and spending cuts:
Safeguarding Fx reserves will require deep budgetary cuts at current oil prices, in our view. Our dynamic analysis suggested that current low oil prices could rapidly erode the sovereign creditworthiness, even as the sovereign balance sheet is at its strongest on an historical basis. Despite the rapid drawdown over 1H15, SAMA’s Fx reserves still stood at c100% of GDP in June, and government deposits at SAMA represented US$294bn or 42% of GDP. Another way to look at sustainability is a static analysis to calculate the number of years required to exhaust government deposits under various oil, spending and financing scenarios.
Based on the narrow definition of resources available to the government, we think that there is no realistic mix of debt financing and spending cuts at US$30/bbl that can decrease pressure on Fx reserves, and pressure on the USD peg would be acute if oil prices were to be sustained at this level. However, at US$40/bbl and US$50/bbl, debt financing and deep capex cuts (to bring spending 25% lower) can keep government deposits at SAMA covering 7 years and 11 years of government spending, respectively. Government spending has historically adjusted to oil prices with a variable lag. It is worth recalling that spending was 50% lower in 1988 compared to its 1981 peak as oil prices tumbled, and government spending in 2000 was at the same levels as that of 1980 in nominal terms.
- The Corruption Of American Freedom
Authored by Newt Gingrich, originally posted at The Washington Times,
This is my third column in a row on corruption.
In the first, I suggested that 75% may be the most important figure in American politics. It is the percentage of Americans who say in the Gallup World Poll that corruption is widespread in government. Given this extraordinary level of contempt for American political and administrative elites, it is no wonder that non-establishment figures like Donald Trump, Ben Carson, and Bernie Sanders are gaining such traction in the presidential nominating contests.
In the second, I compared the American view of widespread governmental corruption with the view in other countries. It turns out that 82 countries have a better view of their government, although many of them not by much. For example, at 74%, Brazilians’ dissatisfaction with corruption in their government has led to nationwide protests. But there are many countries where the view of government corruption is far less: Germany (38%), Canada (44%), Australia (41%), and Denmark (19%).
Today I want to offer some historical context for America’s understanding of corruption.
America’s Founding Fathers had a very precise understanding of corruption. As I describe in my book “A Nation Like No Other,” the Founders used that word less to describe outright criminal behavior than to refer to political acts that corrupt a constitutional system of checks and balances and corrode representative government. They frequently accused the British Parliament of corruption, citing practices such as the crown’s use of “placemen”—members of Parliament who were also granted royal appointments or lucrative pensions by the crown, in exchange for supporting the king’s agenda.
In “The Creation of the American Republic,” Gordon Wood, a scholar of the American Revolution, explains the Founders’ idea of corruption:
“When the American Whigs described the English nation and government as eaten away by “corruption,” they were in fact using a technical term of political science, rooted in the writings of classical antiquity, made famous by Machiavelli, developed by the classical republicans of seventeenth-century England, and carried into the eighteenth century by nearly everyone who laid claim to knowing anything about politics. And for England it was a pervasive corruption, not only dissolving the original political principles by which the constitution was balanced, but, more alarming, sapping the very spirit of the people by which the constitution was ultimately sustained.”
The growing sentiment in colonial America was that its mother country was corrupt. Despite the reforms of the Glorious Revolution [of 1688], the crown had still found a way to “corrupt” the supposedly balanced English government. Wood sums it up:
“England, the Americans said over and over again, “once the land of liberty—the school of patriots—the nurse of heroes, has become the land of slavery—the school of parricides and the nurse of tyrants.” By the 1770’s the metaphors describing England’s course were all despairing: the nation was fast streaming toward a cataract, hanging on the edge of a precipice; the brightest lamp of liberty in all the world was dimming. Internal decay was the most common image. A poison had entered the nation and was turning the people and the government into “one mass of corruption.” On the eve of the Revolution the belief that England was “sunk in corruption” and “tottering on the brink of destruction” had become entrenched in the minds of disaffected Englishmen on both sides of the Atlantic.”
If the Gallup World Poll had been around in the early 1770s, one wonders what percentage of colonial Americans would have said they believed there was widespread corruption in government. Whatever the percentage might have been, we know where colonial America’s disgust with British corruption led: a revolution that replaced a monarchy with a Republic.
The American Founders were determined to create a Republican form of government that would pit special interests against each other so that constitutional outcomes would represent the common good. As Weekly Standard writer Jay Cost writes in his new book, “A Republic No More: Big Government and the Rise of American Political Corruption,” “[p]olitical corruption is incompatible with a republican form of government. A republic strives above all else to govern for the public interest; corruption, on the other hand, occurs when government agents sacrifice the interests of everybody for the sake of a few.”
Cost is so good at describing the problem of corruption that I wish to quote him at length below. Read his explanation and ask yourself whether Cost is describing your views about corruption and government.
“And so we return to one of the earliest metaphors we used to define corruption: it is like cancer or wood rot. It does not stay in one place in the government; it spreads throughout the system. When a faction succeeds in getting what it wants at the expense of the public good, it is only encouraged to push its advantage. By the same token, politicians who aid them and reap rewards for it have an incentive to do it some more, and to improve their methods to maximize their payoffs. Moreover, these successes inspire other politicians and factions to try their hands at raiding the treasury to see if they can do it, too. Thus, a vicious cycle is created that erodes public faith in government, which further contributes to the cycle. When people stop believing that anything can be done to keep the government in line, they stop paying attention carefully or maybe cease participating altogether.
“Ultimately, the public is supposed to be the steward of the government, but how well can it perform that task when it no longer believes doing so is worth its while? How does a democratic government prosper over the long term if the citizenry does not trust the government to represent its interests? How will that not result in anything but the triumph of factionalism over the common good?
“The legitimacy of our government is supposed to derive from the people, and the people alone, who consent to the government because, they believe, it represents their interests. In its ultimate form, corruption eviscerates that sacred notion. The people stop believing that the government represents their interests, and the government in turn begins to operate based upon something other than consent. Put simply, corruption strikes at the heart of our most cherished beliefs and assumptions about republican government. That makes it extremely dangerous to the body politic, regardless of what the Bureau of Economic Analysis says about the rate of GDP growth.”
What Jay Cost describes so well about the erosion of the common good is the underlying explanation of why 75% of Americans say that corruption is widespread in government. It also may explain why voters have elected so many governors recently who had no previous experience in government and why voters are seriously looking at presidential candidates with the same outsider status. Perhaps they hope these outsiders can rid us of corruption by being from outside the system.
Our form of government today allows revolution through the ballot box rather than on the battlefield. But nonetheless, the message for our political elites today is much the same as it was in 1776: They ignore the people’s contempt at their own risk.
- The One Chart The Military-Industrial Complex Is Hoping Mean Reverts
While most of the world will be hoping the following chart never (ever) mean-reverts to its previous historically devastating highs, there is one group that is 'banking' on it… The Military-Industrial Complex…
Source: @MaxCRoser
Of course, as Ron Paul recently explained recently, the current enemy of choice is Russia:
"The people have to have the propaganda convert them into someone they hate, so they can hate…so you had to have a Saddam Hussein, an Ayatollah, or somebody else, and right now it’s Russia."
Paul goes on to note that while the Cold War may have fueled the need for American military spending, its end has left Washington without a clear enemy to demonize. The US government is now spreading disinformation about subjects like the Ukraine crisis in order to paint Russia as a villain.
“All of a sudden the Cold War’s over, and there’s a full explanation of what’s going on in Ukraine, and it’s not all the Russians’ fault, I tell you,” Paul said. “But we have to have an enemy to keep on churning this.”
“Could you believe that maybe the military-industrial complex might have something to do with this?” he added. “Because they probably don’t deliberately say well this started a war, but this started some aggravation which ended up in a war much bigger.”
But we give the last word to Dwight Eisenhower…
Nothing has changed in 54 years… in fact it has just got worse.
- Why The Recurring Economic Crises?
Authored by Murray Rothbard via The Mises Institute,
A selection from Chapter 42 of Economic Controversies.
Why, then, does the business cycle recur? Why does the next boom-and-bust cycle always begin? To answer that, we have to understand the motivations of the banks and the government. The commercial banks live and profit by expanding credit and by creating a new money supply; so they are naturally inclined to do so, “to monetize credit,” if they can. The government also wishes to inflate, both to expand its own revenue (either by printing money or so that the banking system can finance government deficits) and to subsidize favored economic and political groups through a boom and cheap credit. So we know why the initial boom began. The government and the banks had to retreat when disaster threatened and the crisis point had arrived. But as gold flows into the country, the condition of the banks becomes sounder. And when the banks have pretty well recovered, they are then in the confident position to resume their natural tendency of inflating the supply of money and credit. And so the next boom proceeds on its way, sowing the seeds for the next inevitable bust.
Thus, the Ricardian theory also explained the continuing recurrence of the business cycle. But two things it did not explain.
First, and most important, it did not explain the massive cluster of error that businessmen are suddenly seen to have made when the crisis hits and bust follows boom. For businessmen are trained to be successful forecasters, and it is not like them to make a sudden cluster of grave error that forces them to experience widespread and severe losses.
Second, another important feature of every business cycle has been the fact that both booms and busts have been much more severe in the “capital goods industries” (the industries making machines, equipment, plant or industrial raw materials) than in consumer goods industries. And the Ricardian theory had no way of explaining this feature of the cycle.
The Austrian, or Misesian, theory of the business cycle built on the Ricardian analysis and developed its own “monetary overinvestment” or, more strictly, “monetary malinvestment” theory of the business cycle. The Austrian theory was able to explain not only the phenomena explicated by the Ricardians, but also the cluster of error and the greater intensity of capital goods’ cycles. And, as we shall see, it is the only one that can comprehend the modern phenomenon of stagflation.
Mises begins as did the Ricardians: government and its central bank stimulate bank credit expansion by purchasing assets and thereby increasing bank reserves. The banks proceed to expand credit and hence the nation’s money supply in the form of checking deposits (private bank notes having virtually disappeared). As with the Ricardians, Mises sees that this expansion of bank money drives up prices and causes inflation.
But, as Mises pointed out, the Ricardians understated the unfortunate consequences of bank credit inflation. For something even more sinister is at work. Bank credit expansion not only raises prices, it also artificially lowers the rate of interest, and thereby sends misleading signals to businessmen, causing them to make unsound and uneconomic investments.
For, on the free and unhampered market, the interest rate on loans is determined solely by the “time preferences” of all the individuals that make up the market economy. For the essence of any loan is that a “present good” (money which can be used at present) is being exchanged for a “future good” (an IOU which can be used at some point in the future). Since people always prefer having money right now to the present prospect of getting the same amount of money at some point in the future, present goods always command a premium over future goods in the market. That premium, or “agio,” is the interest rate, and its height will vary according to the degree to which people prefer the present to the future, i.e., the degree of their time preferences.
People’s time preferences also determine the extent to which people will save and invest for future use, as compared to how much they will consume now. If people’s time preferences should fall, i.e., if their degree of preference for present over future declines, then people will tend to consume less now and save and invest more; at the same time, and for the same reason, the rate of interest, the rate of time-discount, will also fall. Economic growth comes about largely as the result of falling rates of time preference, which bring about an increase in the proportion of saving and investment to consumption, as well as a falling rate of interest.
But what happens when the rate of interest falls not because of voluntary lower time preferences and higher savings on the part of the public, but from government interference that promotes the expansion of bank credit and bank money? For the new checkbook money created in the course of bank loans to business will come onto the market as a supplier of loans, and will therefore, at least initially, lower the rate of interest. What happens, in other words, when the rate of interest falls artificially, due to intervention, rather than naturally, from changes in the valuations and preferences of the consuming public?
What happens is trouble. For businessmen, seeing the rate of interest fall, will react as they always must to such a change of market signals: they will invest more in capital goods. Investments, particularly in lengthy and time-consuming projects, which previously looked unprofitable, now seem profitable because of the fall in the interest charge. In short, businessmen react as they would have if savings had genuinely increased: they move to invest those supposed savings. They expand their investment in durable equipment, in capital goods, in industrial raw material, and in construction, as compared with their direct production of consumer goods.
Thus, businesses happily borrow the newly expanded bank money that is coming to them at cheaper rates; they use the money to invest in capital goods, and eventually this money gets paid out in higher wages to workers in the capital goods industries. The increased business demand bids up labor costs, but businesses think they will be able to pay these higher costs because they have been fooled by the government-and-bank intervention in the loan market and by its vitally important tampering with the interest-rate signal of the marketplace—the signal that determines how many resources will be devoted to the production of capital goods and how many to consumer goods.
Problems surface when the workers begin to spend the new bank money that they have received in the form of higher wages. For the time preferences of the public have not really gotten lower; the public doesn’t want to save more than it has. So the workers set about to consume most of their new income, in short, to reestablish their old consumer/saving proportions. This means that they now redirect spending in the economy back to the consumer goods industries, and that they don’t save and invest enough to buy the newly produced machines, capital equipment, industrial raw materials, etc. This lack of enough saving-and-investment to buy all the new capital goods at expected and existing prices reveals itself as a sudden, sharp depression in the capital goods industries. For once the consumers reestablish their desired consumption/investment proportions, it is thus revealed that business had invested too much in capital goods (hence the term “monetary overinvestment theory”), and had also underinvested in consumer goods. Business had been seduced by the governmental tampering and artificial lowering of the rate of interest, and acted as if more savings were available to invest than were really there. As soon as the new bank money filtered through the system and the consumers reestablish their old time-preference proportions, it became clear that there were not enough savings to buy all the producers’ goods, and that business had misinvested the limited savings available (“monetary malinvestment theory”). Business had overinvested in capital goods and underinvested in consumer goods.
The inflationary boom thus leads to distortions of the pricing and production system. Prices of labor, raw materials, and machines in the capital goods industries are bid up too high during the boom to be profitable once the consumers are able to reassert their old consumption/ investment preferences. The “depression” is thus seen— even more than in the Ricardian theory—as the necessary and healthy period in which the market economy sloughs off and liquidates the unsound, uneconomic investments of the boom, and reestablishes those proportions between consumption and investment that are truly desired by the consumers. The depression is the painful but necessary process by which the free market rids itself of the excesses and errors of the boom and reestablishes the market economy in its function of efficient service to the mass of consumers. Since the prices of factors of production (land, labor, machines, raw materials) have been bid too high in the capital goods industries during the boom, this means that these prices must be allowed to fall in the recession until proper market proportions of prices and production are restored.
Put another way, the inflationary boom will not only increase prices in general, it will also distort relative prices, will distort relations of one type of price to another. In brief, inflationary credit expansion will raise all prices; but prices and wages in the capital goods industries will go up faster than the prices of consumer goods industries. In short, the boom will be more intense in the capital goods than in the consumer goods industries. On the other hand, the essence of the depression adjustment period will be to lower prices and wages in the capital goods industries relative to consumer goods, in order to induce resources to move back from the swollen capital goods to the deprived consumer goods industries. All prices will fall because of the contraction of bank credit, but prices and wages in capital goods will fall more sharply than in consumer goods. In short, both the boom and the bust will be more intense in the capital than in the consumer goods industries. Hence, we have explained the greater intensity of business cycles in the former type of industry.
There seems to be a flaw in the theory, however; for, since workers receive the increased money in the form of higher wages fairly rapidly, and then begin to reassert their desired consumer/investment proportions, how is it that booms go on for years without facing retribution: without having their unsound investments revealed or their errors caused by bank tampering with market signals made evident? In short, why does it take so long for the depression adjustment process to begin its work? The answer is that the booms would indeed be very short lived (say, a few months) if the bank credit expansion and the subsequent pushing of interest rates below the free-market level were just a one-shot affair. But the crucial point is that the credit expansion is not one shot. It proceeds on and on, never giving the consumers the chance to reestablish their preferred proportions of consumption and saving, never allowing the rise in cost in the capital goods industries to catch up to the inflationary rise in prices. Like the repeated doping of a horse, the boom is kept on its way and ahead of its inevitable comeuppance by repeated and accelerating doses of the stimulant of bank credit. It is only when bank credit expansion must finally stop or sharply slow down, either because the banks are getting shaky or because the public is getting restive at the continuing inflation, that retribution finally catches up with the boom. As soon as credit expansion stops, the piper must be paid, and the inevitable readjustments must liquidate the unsound overinvestments of the boom and redirect the economy more toward consumer goods production. And, of course, the longer the boom is kept going, the greater the malinvestments that must be liquidated, and the more harrowing the readjustments that must be made.
- US Falls Behind Canada, Finland, And Hong Kong In Human Freedom Index
Submitted by MPN News Desk via TheAntiMedia.org,
The United States lags far behind other developed countries in terms of personal, civil and economic freedoms, according to a study released this month. Its neighbor to the north, for example, ranked 14 spots ahead of the so-called “Land of the Free.”
Three international think tanks — the U.S.-based Cato Institute, Canada’s Fraser Institute, and Germany’s Liberales Institut at the Friedrich Naumann Foundation for Freedom — released the Human Freedom Index earlier this month. In addition to major civil liberties, the study considers safety and rule of law, relative size of government and capitalist values like the soundness of money, property rights, and access to international trade. The authors used a total of 70 data sources ranging from 2008 to 2012, the most recent year for which all necessary data is currently available.
According to the report,
“The top 10 jurisdictions in order were Hong Kong, Switzerland, Finland, Denmark, New Zealand, Canada, Australia, Ireland, the United Kingdom, and Sweden.”
The U.S. ranks 20th, while Myanmar, Congo and Iran round out the bottom of the list of 152 countries.
Commenting on Canada’s high ranking compared to the U.S., Fred McMahon, the editor of the study, told the Toronto Sun:
“Canada doesn’t lead in a single area, but it’s high on all areas, like economic freedom … We have a very strong rule of law, good on safety and security. You can’t really have freedom without safety and security. And of course, in what you might call political freedoms and associations, speech and so on, we’re also top of the class.”
McMahon cited the U.S. war on terror, recent changes to property rights, and the ongoing effects of the 2008 financial crisis for the country’s poor ranking. “The U.S. has declined incredibly over the past decade- and-a-half,” he told the Sun last week, adding:
“The U.S. is known as the ‘Land of liberty’ and Canada is known as ‘The land of good governance,’ so it’s a little surprising that a country whose motto hinges on good government as a motto is well-ahead of a country whse motto hinges on liberty.”
Hong Kong’s high ranking may seem surprising, but the index does not attempt to measure democracy, and this year’s report doesn’t take into account recent pro-democracy protests in the country and the subsequent government crackdown.
This wasn’t the only recent study to take issue with civil liberties in America. In February, Reporters Without Borders announced that the U.S. had dropped three places in its “World Press Freedom Index” as a result of a “‘war on information’ by the Obama administration” and a crackdown on reporters’ abilities to freely report on events like the Ferguson protests, where trespassing charges were recently leveled against two journalists for their work documenting last year’s uprising following the death of Michael Brown.
- California Droughtrage – LA County Supervisors Have Cars Washed 3 Times A Week
Great news – Californians have managed to reduce water usage by 31% in July, surpassing the mandated 25% reduction amid the worst drought in centuries. However, this dramatic reduction is in now way thanks to local government in Los Angeles, where, as Daily News reports, the majority of LA County supervisors have their take-home cars washed two or three times a week, service records show, and actually washed them more frequently than before Governor Brown's orders.
California decreased its total water use by 31.3 percent in July, surpassing a goal set by Gov. Jerry Brown four months ago to cut urban water use by 25 percent, according to figures released Thursday, but, as Daily News report, no thanks whatsoever to LA County Board of Supervisors…
Despite living in one of the most car-centric and image-conscious cities in the world, many Los Angeles drivers have cut their carwashes during the crippling drought.
Not so for the Los Angeles County Board of Supervisors.
The majority of the supervisors wash their take-home cars two or three times a week, service records show, and actually washed them more frequently after Gov. Jerry Brown ordered a 25 percent cut in urban water use. As the county’s washes continue to consume tap water, some other local governments have pledged to skip washes for months or are using recirculated water.
“When government takes the initiative, it really says something about their leadership,” said Rachel Stich, spokeswoman for Los Angeles Waterkeeper, an environmental group that started a pledge drive for dirty cars. “If they’re going to be asking their residents to conserve water, everybody needs to be stepping up.”
Meanwhile, city officials in Long Beach, Santa Monica, Burbank, Malibu and San Gabriel have all pledged to stop washing their cars for two months, as part of the L.A. Waterkeeper drive.
And in the final irony,
County officials are studying how to save water at their carwashes, a representative said.
Top county officials get their cars washed in the basement of the Kenneth Hahn Hall of Administration downtown, at one of three carwashes run by the county government. They can receive a car allowance, or have the government purchase them a vehicle, which is then washed, maintained and fueled by taxpayers.
* * *
Once again – do as I say, not as I do!
- All Of Our Hopes & Dreams Come Down To 0.25%
Submitted by Simon Black via SovereignMan.com,
Charles Dickens opened his 1859 masterpiece A Tale of Two Cities with one of the most famous introductions in literary history:
“It was the best of times, it was the worst of times… “
This line is notoriously incomprehensible to high school students around the world.
But as paradoxical as it sounds, it truly hits the nail on the head in describing social inequality.
Dickens wrote his book about the struggles in England and France just prior to and during the French Revolution.
For the aristocracy it was the best of times.
These people were born into a life of unparalleled prestige and luxury simply by accident of birth, without ever having to work a day in their lives.
The working class, on the other hand, toiled away in starvation devoid of any opportunity, freedom, or hope.
For them, it was the worst of times.
Right now the Fed is going to meet in Jackson Hole, Wyoming to discuss what they’re going to do about interest rates.
Interest rates have been kept at zero for years, and now there is talk that they might raise rates to 0.25%.
This is far from a guaranteed thing. In fact, one of the most influential members of the Fed has already stated that with stocks swooning they likely won’t raise rates after all.
That tells you everything you need to know about the Fed. They’re not there for the economy; they’re there to keep stocks in a bubble.
Through their interventions they’ve created massive risks in the financial system, from which the tiniest elite has received disproportionate benefit.
Over the last four years, the top 80 billionaires saw their wealth increased by 50%, while the incomes for the rest of the population remained stagnant.
Adjusted for inflation, the average worker is actually far worse off than they were 15 years ago.
They are the ones who have had to suffer the consequences of the Fed’s actions.
They’ve endured gyrating financial markets, banks that are pitifully capitalized, and insolvent national pension funds—taking all of the risk, but none of the reward.
It might not be the worst of times, but with inequality rising, it’s getting there.
There’s nothing wrong with inequality itself.
There are no two human beings on the planet who are equal. In fact, even trying to strive for equality is both impossible and really boring.
We all have different talents and different productive abilities.
I’m never going to run as fast as Usain Bolt, and I’m just going to have to live with that.
The issue arises when people are able to disproportionately benefit without having to lift a finger at the expense of the rest thanks to a corrupt financial system.
When an entire class of people is able to grow wealthier to the tune of trillions of dollars, simply because central bankers print money and stick everyone else with the bill—that creates huge problems.
Right now, while the Fed is meeting in Jackson Hole, there is a group of activists also meeting there to protest against Fed policy.
100,000 people have signed a petition telling the Fed not to raise interest rates.
They claim that the recovery has only helped Wall Street and the wealthy, whereas for the working class wages haven’t gone up at all. And they’re right.
But what is really sad about this is the fact they’re begging the Fed to not raise rates until wages have gone up.
All these people have their hopes and dreams tied on a quarter of a percent.
That’s how ridiculous things have become.
People are so horrified that if money isn’t absolutely free that all hell will break loose—that people are going to go broke, the market’s going to crash, and that there won’t be any jobs.
That’s a pretty sad state of affairs, and it is by no stretch of the imagination the foundation for a free and prosperous nation.
It is the height of central planning and it is a form of economic tyranny.
Fortunately, this system is on the way out.
Nations are going bankrupt, entire banking systems are nearly insolvent, and national pension funds are already broke.
Governments and central banks have backed themselves into a corner with no way out.
Just look at China: one of the most authoritarian governments in the world can’t control its own market.
And that’s what’s so exciting.
When everything they try isn’t working, it’s clearly time to hit the reset button.
And for those who are ready for it, this will bring a whole new world of opportunities.
Dickens closed his book with a poignant quote that I think it very fitting here:
“I see a beautiful city and a brilliant people rising from this abyss, and, in their struggles to be truly free, in their triumphs and defeats, through long years to come, I see the evil of this time and of the previous time of which this is the natural birth, gradually making expiation for itself and wearing out.”
- Boeing Tests X-Box-Controlled Laser Cannon
Drones have been turning up in strange places lately.
For instance, back in April, a mailman delivered a campaign reform letter to Congress by landing a drone on the Capitol lawn and just a few days later, a radioactive drone turned up on top of Japanese Prime Minister Shinzo Abe’s office (Kuroda paradropping yen?).
Then, in May, a drone showed up in Rosa Parks Circle in Grand Rapids, Michigan and literally rained down money from the heavens.
Meanwhile, earlier this month, a Delta flight and a JetBlue flight had close encounters of the drone kind over JFK, avoiding collisions by just 100 feet.
Well apparently Boeing had had just about enough of people “flying their drones where they shouldn’t” (to quote Wired) because the company has now developed a drone-killing laser cannon which it tested in New Mexico earlier this week. Here’s more from Wired:
The aerospace company’s new weapon system, which it publicly tested this week in a New Mexico industrial park, isn’t quite as cool as what you see in Star Wars—there’s no flying beams of light, no “pew! pew!” sound effects. But it is nonetheless a working laser cannon, and it will take your drone down.
People keep flying their drones where they shouldn’t. In airport flight paths. Above wildfires. Onto the White House lawn. Luckily, there haven’t been any really bad incidents—that is, no one has been killed by a civilian quadcopter or plane, yet.
But governments and militaries around the world are terrified by the prospect of drones carrying explosives or chemical weapons (and now, pornography) into places where they shouldn’t.
There are lots of theories on the best way to deal with the drone threat. An Idaho company has developed special anti-drone shotgun shells. Some agencies are working on jamming technology to block communication from the operator to the aircraft. Firefighters in New York kept it simple, aiming their hose at a pesky drone hovering near a house fire.
Forget all that. Boeing thinks the best way to kill a drone is to zap it with a precision laser, burn a hole in it, and bring it down. So it created a weapon system to do just that—and the result could someday be installed everywhere from LaGuardia to the Pentagon.
But as Wired goes on to note, Boeing appears to have taken all the fun out of the whole idea of a “laser cannon”:
No explosions, no visible beam. It’s more like burning ants with a really, really expensive magnifying glass than obliterating Alderaan.
Ok, so that doesn’t sound very exciting, is there anything fun about this thing?
The laser is controlled with a standard Xbox 360 controller (“If it breaks, just head to the barracks to get a replacement!”) and a laptop with custom targeting software.
That’s more like it – here’s a military grade, precision laser cannon that has that video game feel to it, which we imagine will come in handy when the Pentagon decides it’s time to test this thing out on targets which are, how should we put this… oh, yeah.. human combatants.
Of course, considering how lucrative sales to foreign countries are for America’s military industrial complex, our only question now is how long it will be before someone “loses” a laser cannon in the Middle East only to see it used by former CIA “strategic assets” to down a Predator.
- How Trump Continues To Lead In The Polls
Recent polls indicate that, despite public outcry against his incendiary comments on women and minorities, Donald Trump is still the leading Republican candidate.
Here are some reasons Trump stays so popular with his supporters:
- Highly relatable lack of qualifications for holding government office
- Americans’ appreciation for classic underdog story of man who started with only several hundred million dollars and went on to make several billion dollars
- Only candidate to publicly state willingness to make America great again
- Exploits other Republican candidates’ weaknesses by allowing them to open their mouths and speak on issues
- Very, very handsome
- Voters eager to see presidential library with three infinity pools and rooftop driving range
- Bolstered by impassioned endorsement from Donald Trump
- Eccentric, megalomaniac billionaire still more relatable to average American than anyone willing to dedicate life to politics
- Appeals to widespread desire to see nation implode sooner rather than later
- Pentagon’s New “Law of War” Manual “Reduces Us to the Level of Nazis”
The Pentagon’s new Law of War Manual – a 1,200-plus page document issued in June by the Defense Department’s Office of the General Counsel – is barbaric.
The Manual is so bad that one of the leading experts on the law of war (Dr. Francis Boyle) – who wrote the Biological Weapons Anti-Terrorism Act of 1989, the American implementing legislation for the 1972 Biological Weapons Convention, served on the Board of Directors of Amnesty International, and teaches international law at the University of Illinois, Champaign – says :
This Law of War Manual reduces us to the level of Nazis. There’s no other word for it.
Boyle also says the Manual:
Reads like it was written by Hitler’s Ministry of War.
Why is the Manual so bad?
Manual Authorizes Slaughter of Innocent Civilians
Because – according to Boyle – the Manual allows massacres of civilian populations. The most comprehensive previous such document – the 1956 Pentagon field manual – assumed that any deliberate targeting of civilians was illegal and a war crime.
Reporters Can Be Assassinated
And the Manual treats allows reporters to be treated as “unprivileged combatants”, who can be assassinated.
Boyle points out that this retroactively legalizes assassination of reporters, such as Al Jazeera reporters during Iraq war. Boyle notes that even a SPY would be treated better, and given a trial.
(As we’ve previously noted, the U.S. government treats real reporters as terrorists. Because the core things which reporters do could be considered terrorism, in modern America, journalists are sometimes targeted under counter-terrorism laws.)
Manual Authorizes Barbarous War Crimes
Boyle also says the Manual authorizes the following barbarous war crimes:
(1) Warfare with nuclear weapons. Specifically, the manual states:
There is no general prohibition in treaty or customary international law on the use of nuclear weapons.
This flies in the face of the United Nations Charter, which – as noted by the World Court in its Advisory Opinion on the Legality of the Threat or Use of Nuclear Weapons – makes even threatening to use nuclear weapons a war crime.
This is also particularly worrisome because – as documented in
Towards a World War III Scenario, by Michel Chossudovsky – the U.S. is so enamored with nuclear weapons that it has authorized low-level field commanders to use them in the heat of battle in their sole discretion … without any approval from civilian leaders.(2) Depleted uranium. The use of depleted uranium can cause cancer and birth defects for decades (see this, this, this, this, this, this and this).
(3) Landmines.
(4) Cluster bombs.
(5) Napalm, which is banned under Protocol III of the 1980 UN Convention on Certain Conventional Weapons.
(6) Expanding hollow-point bullets, banned under the 1868 St. Petersburg declaration.
(7) Herbicides, like Agent Orange in Vietnam.
The Good News
The good news – according to Dr. Boyle – is that both Congress and the president have power to revoke the Manual.
So – if we stand up and raise holy hell – we might be able to walk back from the fascist path we’re heading down. And we can prove that we’re not the rogue nation that the rest of the world thinks we are.
- These Four Currency Pegs Are Most Likely To Fall
Ever since Kazakhstan stormed onto the radar screens of a whole host of mainstream financial market commentators who might not have previously known that there was a place called Kazakhstan, everyone wants to know which currency peg will fall next.
Over the past week, we’ve taken a look at the riyal, the dirham, and of course, the Hong Kong dollar. Below, find a new chart from Bloomberg which attempts to show which pegs are most vulnerable based on the following six statistics: 1) Oil rents as a percent of GDP; 2) the current account balance as a percent of GDP; 3) external debt as a percent of GNI; 4) total reserves in terms of months of imports; 5) total reserves as a percent of external debt; 6) the change in the real effective exchange from 2010 to 2014.
- Nassim Taleb's Fund Made $1 Billion On Monday; This Is How The Other "Hedge" Funds Did
You can’t say Nassim Taleb didn’t warn you: the outspoken academic-philosopher, best known for his prediction that six sigma “fat tail”, or black swan, events happen much more frequently than they should statistically (perhaps a main reason why there is no longer a market but a centrally-planned cesspool of academic intervention) just had a black swan land smack in the middle of the Universa hedge fund founded by ardent Ron Paul supporter Mark Spitznagel, and affiliated with Nassim Taleb.
The result: a $1 billion payday, translating into a 20% YTD return, in a week when the VIX exploded from the teens to over 50, and which most other hedge funds would love to forget.
The WSJ reports:
Universa Investments LP gained roughly 20% on Monday, according to a person familiar with the matter, a day when the market collapsed more than 1,000 points in its largest ever intraday point decline. Universa’s profits—some realized and some on paper—amounted to more than $1 billion in the past week, largely on Monday, as its returns for the year climbed to roughly 20% through earlier this week.
“This is just the beginning,” said Universa founder Mark Spitznagel, a longtime collaborator with Mr. Taleb, who advises Universa, lectures at New York University and is known for his pessimistic forecasts about the global economy. Mr. Spitznagel himself has spent the last several years warning of a coming correction, one he viewed as inevitable given accommodative policies by central banks around the world.
“The markets are overvalued to the tune of 50% and I’ve been saying that for some time,” said Mr. Spitznagel.
Universa gained renown for its outsize gains in 2008, racking up more than 100% profits for many of its clients. In 2011, it notched around 10% to 30% gains for clients. During the years in between it posted steady, small losses.
The firm focuses on finding cheap, shorter-dated options on the S&P 500 and other instruments it expects to rise in value amid a notable downturn.
During the past week, the value of such options that Universa bought over the past one to two months jumped, said people familiar with the matter.
The Miami-based Universa and some other “black swan” hedge funds that seek to reap big rewards from sharp market downturns have emerged as winners amid the world-wide volatility of the past week, say their investors, racking up double digit gains in roughly the past week.
Incidentally, this is precisely what a “hedge” fund should do: protect against massive, “fat tail” days like this Monday; instead they merely ride the beta train with the most leverage possible, hoping that the Fed will prevent any events that actually need hedging, and blow up in a fiery crash any time the market tumbles. Needless to say this makes most of them utterly useless, especially since one can just buy the SPY for almost nothing, and avoid paying the hefty 2 and 20 (or 3 and 45) fee, which until recently was merely there to fund trading based on inside information aka “expert networks” and “idea dinner” thesis clustering.
And speaking of non-hedging “hedge” funds, the table below lays out the performance of some of the most prominent names through either Friday of last week, or as of mid-week. You will notice three things: i) a lot of minus signs for entities that supposedly “hedge” market drops, ii) Bill Ackman’s Pershing Square, which until last month was among the best performers, was – as of Wednesday – down for the year, and iii) Ray Dalio’s “risk parity” quickly has become “risk impairty” in an environment where both stocks were sold by the boatload, at the same time that China was dumping US treasurys – a scenario no “risk parity” fund is prepared for.
- "No Recovery For You!" Brazil Officially Enters Recession, Goldman Calls Numbers "Disquieting"
Well, you know what they say: when it rains it pours, especially when you’re the poster child for an epic emerging market unwind and you’re suffering through the worst stagflation in over a decade while trying to clean up the feces ahead of the summer Olympics.. or something.
Make no mistake, Brazil is in a tough spot.
Here’s a list of problems: 1) collapsing commodity prices, 2) the worst inflation-growth outcome in over a decade, 3) deficits on both the fiscal and current accounts, 4) street protests calling for the President to be sacked, 5) a plunging currency, 6) allegations of rampant government corruption. And we could go on.
On Friday, the latest quarterly GDP print shows the country sliding into recession (of course these determinations are always backward looking and just about every indicator one cares to observe seems to show that the economy is closer to depression than it is to the early stages of recession) as output contracted 1.9% in Q2. Here’s the summary from Barclays:
Q2 15 real GDP in Brazil surprised on the downside, contracting -1.9% q/q sa and compatible with a y/y print of -2.6%. This follows a downwardly revised -0.7% q/q sa Q1 real GDP print (previous: -0.2%), and also a flat real GDP print in Q4 14 (previous: 0.3% q/q sa). As a matter of fact, the past three quarters were revised to the downside, which now implies a strong negative carry-over for this year: if real GDP is flat in H2 15, the annual growth would be -2.3%.
Relative to our forecast, household consumption, fixed-assets investments and imports all surprised on the downside. These components reflect the adverse conditions for domestic demand, as a reflection of higher inflation, interest rates, fall in income and weaker currency.
And from Goldman:
The forecasted deeper 2015 recession will contaminate the 2016 growth outlook. Given the worse-than-expected 2Q figure and the downward revision to 1Q sequential growth, our profile for 2H2015 growth points now to a 2.6% contraction of real GDP in 2015 (down from our previous -2.1% forecast) and worsens the statistical carry-over for growth in 2016 to -0.8%. That is, were the economy to stay flat throughout 2016 at the expected 4Q2015 level, real GDP would contract by 0.8% in 2016. Hence, we are now forecasting real GDP to contract 0.4% in 2016 (down from the previous -0.25% forecast). This is consistent with average quarterly real GDP growth of 0.10%-0.20%, a path that is still subject to obvious downside risks given the prevailing high level of macro and political uncertainty and recognized negative skew in the distribution of domestic and external risks.
The latest on the political front is that President Dilma Rousseff has 15 days to explain to the the Federal Accounts Court why everyone seems to think that she intentionally delayed nearly $12 billion in social payments last year in an effort to make the books look better than they actually were. And while we won’t endeavor to weigh in one way or another on that issue, what we would say is that if someone in Brazil is doctoring this year’s books, they aren’t doing a very good job because things just seem to keep going from bad to worse.
Case in point, on Friday, Brazil said its primary budget deficit was R10 billion in July, far wider than expected. The takeaway: “no 2015 primary surplus for you!“
Here’s Goldman with the breakdown:
The consolidated public sector posted a worse than expected R$10.0bn deficit in July, driven by the weak performance of both the central and regional governments. The central government posted a R$6.0bn deficit in July and the states and municipalities a larger than expected R$3.2bn deficit. Finally, the state-owned enterprises added another R$810mn to the overall deficit.
On a 12-month trailing basis the consolidated public sector recorded a 0.9% of GDP primary deficit in July, worse than the 0.6% of GDP deficit recorded in December and, therefore, increasingly distant from the new unimpressive +0.15% of GDP surplus target. Hence, it is increasingly likely that we may observe a second consecutive year of primary fiscal deficits.
The overall public sector fiscal deficit (primary surplus minus interest payments) widened to a very large 8.81% of GDP, from 6.2% of GDP in the 12 months through December 2014. The net interest bill is running at 7.92% of GDP in the 12 months through July.
Gross general government debt worsened to 64.6% of GDP, up from 58.9% of GDP at end 2014 and 53.3% of GDP in 2013.
The twin combined fiscal and current account deficits now exceed a disquieting 13.2% of GDP.
Overall, we have yet to detect a visible turnaround in the fiscal picture. The overall fiscal deficit is tracking at a disquieting 8.8% of GDP, driven in part by the surging net interest bill, which was exacerbated by the large losses on the central bank stock of Dollar-swaps. We expect the gradual fiscal consolidation process to last at least 3-4 years, perhaps longer.
As Barclays recently argued, a downgrade to junk is now just “a matter of time,” a development which may well usher in a new era in which the world’s emerging economies begin to backslide into “frontier” status, and as we put it earlier this month, after that it’ll be time to break out the humanitarian aid packages.
* * *
Bonus: Charting a Brazilian nightmare
Bonus Bonus: “That aint no unpopular President, THIS is an unpopular President”…
Stay positive Brazil…
- Weekend Reading: Just A Correction, Or Something Else
Submitted by Lance Roberts via STA Wealth Management,
Earlier this week I posted two pieces of analysis with respect to the recent dive in the markets. The first discussed the possibility that this is just a correction within an ongoing bull market. The second delved into the possibility that a new cyclical bear market has begun. Only time will tell which is truly the case.
However, in ALL cases, the initial decline led to a subsequent bounce and ultimately retested previous lows. As shown in the chart below, this was the case in 2010 and 2011 which were ultimately followed by Federal Reserve interventions that helped the bull market regain its footing.
The question is whether, with economic growth rates slowing and deflationary pressures building, will the Fed again intervene by postponing rate hikes and injecting liquidity? Or, is this recent correction just the beginning of something larger? Only time will tell for certain. However, there is mounting evidence that we are indeed closer to the end of this bull market cycle than the beginning.
This weekend's reading list is a smattering of views from bulls, to bears and everything in between as to the recent correction. Is it just a correction to be followed by a resumption of the bull market? Or something else?
THE LIST
1) Panic Attack Or Start Of A Bear Market by Ed Yardeni via Dr. Ed's Blog
There have been lots of panic attacks since the start of the bull market in early 2009. The first four of them occurred from the second through the fourth years of the current bull market, and they were full-fledged corrections. They were all triggered by worries that a recession was imminent, with anxiety focused on three major and varying concerns: a double-dip in the US, a disintegration of the Eurozone, and a hard landing in China–all having the potential to cause a global recession either individually or in combination. When those fears dissipated, relief rallies ensued."
Read Also: Was Monday's Plunge Capitulation, Nah! by Simon Constable via Forbes
2) Dog Days Of Summer Not Over Yet by Jeff Hirsch via Almanac Trade Tumblr
"The Dog Days are not over for the market. This hazy, hot and sultry time during July and August were named the Dog Days of summer in antiquity by stargazers in the Mediterranean as the time period before and after the conjunction of Sirius, the Dog Star of the constellation Canis Major (Big Dog) and the sun. Back in the day the Dog Days were often plagued with, fever, disease and discomfort.
Selling continues to plague the stock market and we expect selling will continue through September, the other worst month of the year along with its neighbor August. September is the worst month of the longer term since 1950. Around this time last year I was on CNBC and the other commentator in the segment, Dan Greenhaus, Chief Global Strategist, BTIG (Great guy and analyst whom we respect and does great work), keenly pointed out the S&P 500 had been up in 8 of the previous 10 years from 2004 to 2013. So maybe September was not bad for the market anymore."
Read Also: 10 Things To Consider About Recent Market Panic by John Ogg via 24/7 Wall Street
3) What Happens Next Is Important by Adam Grimes via AdamHGrimes.com
"In October 2014, the selloff in stocks was strong enough (i.e., generated enough downside momentum) that we might reasonably have looked for another leg down. If that scenario was in play, what we "should have" seen was a fairly slow bounce, setting up some kind of flag/pullback, that would pretty quickly break to new lows. If that had happened, there was a possibility that we'd see continued legs of selling and the eventual breakdown of trends on higher timeframes. This is a good roadmap for how lower timeframe trends can have an impact on higher timeframes.
Instead, what happened? The market turned around, rocketed higher, and we knew, literally within the space a few days, that this wasn't an environment in which we were likely to find good shorts. Instead of the slow bounce, we got a hard bounce and the market quickly went to new highs. Following the decline, that type of bounce was unusual, but it was a clear message from the market."
Read Also: Some Good Things About Crashes by Matt Levine via Bloomberg
4) 99.7% Chance We're In A Bear Market by Myles Udland via Business Insider
"In his latest note to clients, Edwards warns that the recent snapback rallies we've seen in the stock market are merely headfakes and that stocks are probably headed lower.
In his note, Edwards references a model developed by his colleague Andrew Lapthorne, which incorporates macroeconomic and fundamental equity variables, and which currently indicates a 99.7% probability that we are in a bear market."
Also Read: Here's Why The Stock Market Correction Isn't Over Yet by Anora Mahmudova via MarketWatch
But Also Read: Most Top Flight Market Timers Are Bullish by Mark Hulbert via MarketWatch
5) When There Is No Place To Hide by Ben Carlson via A Wealth Of Common Sense
"Some people assume that because nearly all risk assets fall at the same time that markets are becoming more and more intertwined with one another. While I think that globalization and the free flow of information could potentially be speeding up market cycles, risk assets have been highly correlated during stock market corrections for some time now. This is nothing new. Here are the historical numbers that show how different stock markets and market caps have performed during past large losses in the S&P 500:"
Read Also: It's Different This Time…But Its Happened Before by Erik Swarts via Market Anthropology
Other Reading
Like 2008 Never Happened by Jeffrey Snider via Alhambra Partners
The Difference Between Traders And Investors by Cam Hui via Humble Student Of The Markets
Timing The Markets With Value And Trend by Meb Faber via Meb Faber Research
Interview With Jim Grant: Market A Hall Of Mirrors via ZeroHedge
Are Central Banks Corrupted? By Paul Craig Roberts via The Economic Populist
Fact vs Fiction: Low Oil Prices And Houston Housing by Aaron Layman via Arron Layman.com
A Laugh For A Tough Week
Everyone Who Started Watching MadMoney In 2005 Now Billionaires via The Onion
"You take the blue pill, the story ends. You wake up in your bed and believe whatever you want to believe. You take the red pill, you stay in wonderland, and I show you how deep the rabbit hole goes." – Morpheus, The Matrix
Have a great weekend.
- Biggest Short Squeeze Since 2008 Bank Bailout And Epic VIX Rigging Sends Stocks Green For The Week
UNRIGGED!!
VIX ETFs were screwed with…
To ensure S&P closed Green!!!
* * *
After a week like that, we think everyone needs some downtime… relax… (NSFW)
Before we get to stocks, oil is the big news this week… as a short-squeeze morphed into leaked news which became the real news of a Saudi invasion of Yemen…
This is the biggest weekly gain for WTI since Feb 2011 (when politicial unrest surged in MidEast and Northern Africa with Libya at the heart)
As the Oil-USD correlation regime has flipped dramatically post-FOMC Minutes…
Sparking a huge squeeze higher in Energy stocks…
8 of the 10 biggest gainers in SPDR oil and gas exploration ETF are refiners which are more like inverse bets on oil (crude is an input thus betting on dropping oil prices flowing through to margins)… so the ultimate irony is XLE is surging on negative oil bets and dragging oil higher.
Because that has worked out so well before…
As Credit Suisse noted – nothing has changed with the fundamentals.
* * *
Volume today in stocks was abysmal…
Energy's ramp supported much of the gains in the broad indices…and with panic buiyi9ng at the close thanks to XIV manipulation
A look at The Dow futures gives a sense of the panic.. and the resistance that it can't break…
Futures for the week show the craziness of the moves… DUDLEY IS THE NEW BULLARD!!!
VIX was all kinds of messy this week – slammed lower into the close to guarantee a green close for stocks
But VXX shorts were dramatially squeezed every day… this was VXX's biggest weekly gain since May 2010.. and the biggest 2-week rise (up 68%) ever…
56 members of the S&P 500 gained more than 5% this week!!!
And "Most Shorted" had their best (or worst) 3-day surge since Nov 26th 2008 – i.e. the biggest short squeeze since post-Lehman creation of TALF, bailout of Citi, froced acquisiion of BofA and Merrill, and Fed buying GSE debt
The last time shorts were squeezed this much, this happeened…
The Bottom Line: Window Dressing (Most Momentum) and Squeezes (Most Shorted) provided all the ammo needed to create the illusion that all is well
* * *
Treasury yields had an ugly week as investors were awakened to just what China's devaluation dilemma means… Rising odds of a Sept hike (rom Fischer) sent the long-end lower and front-end higher today…
The USD Index was up around 1.3% on the week – the best week in the last 6 weeks led by AUD and EUR weakness…
Commodities were mixed on the week with USD strength sending PMs lower but growth hyper, squeezes, and war driving copper and crude higher…
Charts: Bloomberg
Bonus Chart: Briefly this week, US equities reflected their short-term macro fundamentals…
Bonus Bonus Chart: This is the data The Fed is dependent on…
Here's the "data" they're waiting on pic.twitter.com/AWB7UVrqSQ
— Not Jim Cramer (@Not_Jim_Cramer) August 28, 2015
- Fed Kocherlakota: 2015 Rate Rise Not Appropriate, Open To More Stimulus
EMOTION MOVING MARKETS NOW: 11/100 EXTREME FEAR
PREVIOUS CLOSE: 12/100 EXTREME FEAR
ONE WEEK AGO: 5/100 EXTREME FEAR
ONE MONTH AGO: 21/100 EXTREME FEAR
ONE YEAR AGO: 33/100 FEAR
Put and Call Options: EXTREME FEAR During the last five trading days, volume in put options has lagged volume in call options by 22.79% as investors make bullish bets in their portfolios. However, this is still among the highest levels of put buying seen during the last two years, indicating extreme fear on the part of investors.
Market Volatility: FEAR The CBOE Volatility Index (VIX) is at 28.99, 77.76% above its 50-day moving average and indicates that investors are concerned about the near-term values of their portfolios.
Stock Price Strength: EXTREME FEAR The number of stocks hitting 52-week lows is slightly greater than the number hitting highs and is at the lower end of its range, indicating extreme fear.
PIVOT POINTS
EURUSD | GBPUSD | USDJPY | USDCAD | AUDUSD | EURJPY | EURCHF | EURGBP| GBPJPY | NZDUSD | USDCHF | EURAUD | AUDJPY
S&P 500 (ES) | NASDAQ 100 (NQ) | DOW 30 (YM) | RUSSELL 2000 (TF) | Euro (6E) |Pound (6B)
EUROSTOXX 50 (FESX) | DAX 30 (FDAX) | BOBL (FGBM) | SCHATZ (FGBS) | BUND (FGBL)
MEME OF THE DAY – I JUST LOVE MY NEW SWEATER
UNUSUAL ACTIVITY
WLL vol pop to highs Activity in the SEP 17 CALLS 1800+ @$1.30
LL Jan 15 PUT Activity 10k @$3.30 on offer
SSTK SEP 35 CALLS 1300+ @$.75 ON offer
TCK Nov 9 CALL Activity @$.25 right by offer 5000 Contracts
RE Director Purchase 5,000 @$169.5 Purchase 5,000 @$170.00
HEADLINES
Fed VC Fischer: Still too early to tell if September hike will happen
Fed Kocherlakota: 2015 rate rise not appropriate, open to more stimulus
Fed Mester: US economy can support rate increase
Fed Bullard: Rate hike would signal confidence, unfazed by mkt turmoil
Fed’s Lockhart: Market vols makes him less certain on Sept hike
Atlanta Fed GDPNow tracker updated to 1.2% (prev. 1.4%)
US Personal Income (MoM) Jul: 0.40% (est 0.40%; prev 0.40%)
US Personal Spending (MoM) Jul: 0.30% (est 0.40%; rev prev 0.30%)
US PCE Core (YoY) Jul: 1.20% (est 1.30%; prev 1.30%)
German CPI YoY (Aug P): 0.2% (est 0.10%, prev 0.20%)
German CPI MoM (Aug P): 0% (est -0.10%, prev 0.20%)
SNB Jordan: Swiss franc significantly overvalued, ready to intervene
GOVERNMENTS/CENTRAL BANKS
Fed VC Fischer: Still too early to tell if September hike will happen –CNBC
Fed Kocherlakota: 2015 rate rise not appropriate, open to more stimulus –CNBC
Kocherlakota would prefer a hike in second half of 2016 –FBN
Fed Mester: US economy can support rate increase –WSJ
Fed Bullard: US rate hike would signal confidence –FT
Fed Bullard unfazed by market turmoil –Rtrs
Fed’s Lockhart: Market vols makes him less certain on Sept hike, though every meeting is live –MNI
Atlanta Fed GDPNow tracker updated to 1.2% (prev. 1.4%)
SNB Jordan: Swiss franc significantly overvalued
SNB Jordan: SNB stands ready to intervene
Japan EcoMin Amari: Canada elections, US primaries, may affect momentum on TPP talks –Kyodo
Greece’s Syriza to win election but face setback, polls show –Rtrs
GEOPOLITICS
Merkel, Hollande, Putin plan weekend call on Ukraine –BBG
FIXED INCOME
BONDS COMMENT: Reflation threat to bonds as money supply catches fire in Europe –Telegraph
Two departures in Swiss debt capital markets –IFR
Merck jumps in first with jumbo M&A trade –IFR
COMMENT: Treasury Market Is Offering Stock Picks: AT&T, Verizon Are a Buy –WSJ
FX
USD: Dollar on track to finish turbulent week higher against euro, yen –MW
CAD: USDCAD retreats from as oil jumps to $45 –FXStreet
GBP: Pound falls vs euro as UK growth slows in Q2 –BBG
CNY COMMENT: China’s ongoing FX trilemma and its possible consequences –Alphaville
AUD: Aussie lifted by commodities –Australian
NZD: Kiwi heading for 3.1pc weekly drop after China slump –NZH
ENERGY/COMMODITIES
CRUDE: WTI futures settle 6.25% higher at $45.22 per barrel –Livesquawk
CRUDE: Brent futures setlle 5.25% higher at $50.05 per barrel –Livesquawk
CRUDE: Arab Opec producers brace for oil-price weakness for rest of 2015 –Rtrs
CRUDE: Crude short squeezed –Forex.com
METALS: Gold sets up for first gain in five sessions –MW
EQUITIES
FLOW: US funds cut recommended global equity exposure again –Rtrs
M&A: Mylan shareholders back Perrigo takeover, tender offer up next –Rrts
BANKS: BofA shareholders should vote to separate the CEO and chairman roles –BBG
GAMING: Battle for Bwin reflects rising stakes –FT
TRADING: Charles Schwab trading system issue resolved –FT
TECH: Facebook must obey German law even if free speech curtailed –Rtrs
EMERGING MARKETS
CHINA: Citi: China Will Respond Too Late to Avoid Recession –BBG
CHINA: POLL: PBOC to cut rates again by end of Dec –ForexLive
CHINA: PBOC Conducted CNY60 Bln 7-Day SLO Op. At 2.35% Today –BBG
BRAZIL: Brazil economy dips more than expected –FT
S&P affirms Ukraine CC, outlook still negative –Livesquawk
- America (In 1 License Plate)
- Explaining The Stock Market Rebound In 1 Simple Chart
Many were stunned at the pace of the v-shaped recovery in US equity markets this week after Monday and Tuesday's carnage. However, as the following chart makes very clear, there was good reason for it… Having overshot to the downside of "Fed-Balance-Sheet-Implied" levels but around 100 S&P points, the broad index ripped back higher to almost perfectly settle at "Fed Fair Value" – between 1980 and 2000. But, there is a rather ominous event occuring in 2016 that is out of The Fed's control that implies S&P 1,800 unless QE4 is unleashed.
Fed balance sheet implies an S&P level around 1990…
What happens next? Well, Scotiabank's Guy Haselmann has some thoughts…
The Fed's balance sheet has $400 billion of maturities to deal with in early 2016 which the market place is not paying enough attention to.
I believe the Fed will want to allow as much of this as possible to roll off (i.e. the balance sheet will shrink). The decline in the Feds balance sheet is a defacto tightening.
The Fed may be reluctant to do both, i.e. hike, while also allowing the balance sheet to shrink too quickly. They could hike and do some re-investment, but it may be strange re-invest a large portion at the same time that they are hiking.
I believe market turmoil and balance sheet maturities will cause a period of (hike) pauses in 2016. If this is true, Treasury market yields may not rise as high as some pundits are warning.
A $400 billion reduction – which is inevitable unless The Fed unleashes a new QE – means S&P drops to 1800… and further…
Charts: Bloomberg
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