- Democratic Debate Post Mortem (In 1 Poignant Image)
Sanders by a landslide…
In the Polls..
Drudge…
CNN…
In Searches…
.@BernieSanders leads @HillaryClinton in @google search interest since the start of the #DemDebate pic.twitter.com/VmJzL3eNwK
— Google Politics (@googlepolitics) October 14, 2015
And On Twitter…
Who’s gained the most Twitter followers since #DemDebate started: · Sanders: 28,446 · Clinton: 10,474 · O’Malley: 3,762 · Webb: 2,612
— Dan Diamond (@ddiamond) October 14, 2015
Who’s gained more Twitter followers during the #DemDebate, by percentage? · Sanders: +4.0% · Clinton: +0.2%
— Dan Diamond (@ddiamond) October 14, 2015
* * *
So to sum up…It's lonely sometimes…
As an alibi? https://t.co/4NvufALDeu
— zerohedge (@zerohedge) October 14, 2015
* * *
Some key excerpts…
Jane Wells summed up one exchange perfectly as Hillary's alleged law-breaking was conveniently swept under the carpet…
Line of the night from Sanders: "The American people are sick and tired of your damn emails." Oh, really…
— janewells (@janewells) October 14, 2015
And the second line of the night: "Secretary Clinton do you want to respond?" "no."
— janewells (@janewells) October 14, 2015
And Benghazi won the early rounds…
#debatedrinkinggame leaders: Benghazi- 5? 1%-5 billionaires/wealthy-4 working/avg American-4 and late add: Quagmire-4
— janewells (@janewells) October 14, 2015
But Wall Street "won" overall…
Theme of the night: "Wall St"said about 12 times at least. "Billionaires" – 7, "working people" – 7, "1%" – 6.
— janewells (@janewells) October 14, 2015
Hillary and her average-American-ness…
“I’m just an ordinary citizen who didn’t take a position on Keystone until I took a position on Keystone.” pic.twitter.com/l2k24PVF72
— Dan Diamond (@ddiamond) October 14, 2015
On College education affordability (and pretty much everything else)…
"You get free debt and you get free debt and you get free debt"
— zerohedge (@zerohedge) October 14, 2015
- Gold Jumps As China Devalues Yuan By Most In 2 Months, "Boosts Reforms" Of Corporate Bond Bubble
AsiaPac stocks are extending losses in early trading asit appears our fears about the Chinese coporate bond market bubble are also on the minds of Chinese regulators as they look to "boost reforms." After the PBOC has fixed the Yuan stronger for 8 straight days, the onshore and offshore Yuan has weakened appreciably in the last 24 hours and PBOC has devalued Yuan by 177pips – the biggest in 2 months (as PBOC researchers push to "speed up Yuan internationalization" and implicitly inclusion in the SDR basket).
Gold jumped on the Yuan devaluation…
AsiaPac stocks are lower again…
- *CHINA'S CSI 300 STOCK-INDEX FUTURES FALL 0.5% TO 3,400
- *MSCI ASIA PACIFIC INDEX DROPS 1.4%, EXTENDING DECLINE
As fears rise of a bubble in Chinese corporate bonds…
Reform it!
- *CHINA TO BOOST CORPORATE BOND MARKET REFORM: 21ST HERALD
Good luck, as Commerzbank's Zhou concludes…
"Global investors are looking for signs of a collapse in China, which itself could increase the chances of a crash… This game can’t go on forever."
* * *
The Yuan has been 'fixed' stronger for 8 straight days… but tonight PBOC devalues Yuan by 177pips – the most in 2 months
- *CHINA SETS YUAN REFERENCE RATE AT 6.3408 AGAINST U.S. DOLLAR
- *CHINA WEAKENS YUAN FIXING MOST SINCE AUG. 13
And PBOC reseeacrhers are pushing for rapid internationalization of Yuan (and inclusion in the SDR basket)… beginning their paper with the rather USD reserve Currency Status challenging statement:
World History tells us that economic power is necessarily financial power, only to become the financial powerhouse before it can become an economic power.
China must speed up yuan internationalization to develop the finance industry, PBOC research bureau head Lu Lei writes in People’s Daily.
- The yuan needs to be included in the SDR basket, Lu writes
- China’s current financial structure is dominated by indirect financing and doesn’t make enough sense, Lu writes
- China should further improve stock market and increase the proportion of equity financing, Lu writes
Financial power is the inevitable direction of sustainable development of economic power
Charts: Bloomberg
- What You're Supposed To Think Vs What You Think
I could trace my 30 years of investigative reporting as one long project emanating from what people are supposed to think.
What they’re supposed to think about nuclear weapons, pesticides, medical drugs, vaccines, presidential elections, major media, the CIA, US foreign policy, mega-corporations, brain research, collectivism, surveillance, psychiatry, immigration…
In each case, there are a set of messages broadcast to the population. These messages are projected to replace what people would think on their own, if left to their own devices.
And in many cases, these messages have the same underlying theme: feel unlimited sympathy.
Feel unlimited sympathy or else.
In the area of immigration, for example, people are supposed to welcome endless numbers of refugees to their shores and cities and towns.
If they don’t put out the welcome sign, they’re evil, they’re cold, they’re “capitalists,” they’re unloving, they’re cruel, inhumane.
They’re immune to proper feelings of guilt and shame.
There is also an interesting guilty “we” attached to the issue. “We” invaded other countries, “we” bombed populations, imposed devastating economic sanctions, launched corporate takeovers—and therefore “we” should now open our doors to these refugees.
The government didn’t do these things. The State didn’t do these things. “We” did.
“We” is a very, very popular collectivist concept. It assigns massive guilt, while somehow exonerating the political leaders of the collective.
“We” is a great cheese glob that envelops all of us. “We” is a metaphysical construct that replaces “I.” There is no “I.”
Therefore, what some “deluded individual” might think and decide and determine on his own—which could very well run counter to the “we”—is irrelevant.
When it’s time to undertake wars on a grand scale, there is a George Bush who announces what the “we” wants. And when it’s time for the guilt and the sympathy and the bleeding heart, there is an Obama who announces what the “we” wants.
In general, the “we” is there to convince the individual that he is useless and powerless against the advancing cheese glob. He need not bother thinking what he really thinks, because it would make zero difference. Much better to become part of the “huddled mass,” waiting for instructions on how best to serve humanity.
Logic, rational consideration, the ability to analyze a line of thought and find flaws and gaps and deceptions? An outmoded concept that doesn’t apply to the “we.”
You see, the “we” is something quite different. It proceeds by a) committed aggression or b) endless sympathy, depending on what is called for by our leaders.
It moves like inexorable lava slowly leaking away from a volcano. The glob.
It needs no individual intelligence. Making distinctions is unnecessary.
And, one thinks, perhaps the solution to this wretched state of affairs is finding a different “we” to belong to. That will solve the whole problem.
But the underlying solution, as formidable as it may seem, is: dismantle the whole “we.” Expose it for what it is. And reinstate the individual and what he does think, as opposed to what he should think.
The cheese glob, the lava glob, the advancing fungus is the false construct. It was put there and massaged and stimulated to engage the individual and make him think he was excessively “privileged.” He was an outsider who couldn’t see the need and the joy of “belonging.”
He was behaving like a criminal, even a terrorist. He was detracting from the power and the warmth and the humanity of the collective hearth.
What most people take to be Reality is actually invented for the “we.”
And to take all this a step further, Reality is meant to distract the individual from discovering the depth of his own power, which is to say, creative power.
Every organized religion, every State, every so-called spiritual system and philosophy is built to derail the individual in this way.
After all, Reality points to itself. Reality says, “Look at this. Look at me. Understand me. This is what you need to focus on. This is all there is.”
And so it seems the main attribute of the individual is “perceiving what is.” Perceiving Reality.
However, detaching one’s self from that prescription reveals another opportunity, vast in its possibilities:
The ability to analyze the “we” and its many messages and discover what they are and how they are designed—and the capacity to imagine and invent new independent realities without end.
The scope and range of what the individual can do, in this regard, is limited only by: what he can imagine.
The psyop of all psyops seeks to bury this fact.
- "Mommy, Am I Gonna Die?": Cop Aims For Dog, Shoots 4 Year Old, After Injured Mom Calls 911
To Protect and Serve? When Whitehill resident Andrea accidentally cut her arm on glass, her sister frantically called 911, "I need a paramedic." Columbus Police Officer Jon Thomas responded to the house where he pulled out his gun and shot toward the family's dog (which he claims ran toward him), missed, and hit Andrea's four-year-old daughter Ava in the leg, shattering her bone.
As The Columbus Dispatch reports, Andrea also revealed that the cop never apologized or asked if Ava was okay and immediately left after shooting her.
A Columbus police officer accidentally wounded a 4-year-old girl in Whitehall on Friday when he fired at a charging dog, police said.
A neighbor and the girl’s uncle identified her as Ava Ellis, who was taken to Nationwide Children’s Hospital, where police said she was in stable condition.
The officer was at a house in the 4100 block of Chandler Drive investigating a hit-and-run case about 3:10 p.m., Columbus police spokeswoman Denise Alex-Bouzounis said.
As the officer was walking from the home to his patrol car, a woman a few houses away called out to him, saying her sister and the girl’s mother, Andrea Ellis, had cut herself.
The officer was at the doorway when a dog charged at him, Alex-Bouzounis said.
The officer fired once, missing the animal but striking the girl in the right leg. It was unclear whether the girl was hit directly or by a ricochet. The officer has not been identified.
Neighbors say the officer walked back to his patrol car after the shooting.
“He seemed a little disoriented, like he was really bothered,” said Norman Jones, who called the police after hearing the shot. Columbus and Whitehall police arrived at the scene shortly afterward.
“Mommy, am I gonna die?” four-year-old Ava Ellis asked her mother.
The family created a Facebook page for Ava.
As Salon reports, her mother Andrea wrote her account of the incident in a post. She names the police officer who shot her child, Jonathan Thomas, and says that, as soon as he saw the dog, who was eight to 10 feet away from him, he fired — in the direction of her eight-year-old niece and Ava.
Officer Thomas claimed that the dog charged at him, but Andrea’s sister Brandie denies this, and says the pet was in the house when he shot at it.
Andrea also revealed that the cop never apologized or asked if the four-year-old was okay and immediately left after shooting her. Neighbors have corroborated this account. Ava’s mother wrote:
“Officer Thomas then told my sister to stop yelling at him and walked back to his vehicle. Officer Thomas never said sorry, never said it was an accident, never said that he called for help or was going to call for help, never asked if Ava was ok, and never asked if he could check on Ava. Officer Thomas went back to his vehicle and started to pull away. My neighbors have even verified that he started pulling away before any help was there. Officer Thomas shot Ava and left knowing he shot Ava and not knowing the condition she was in.”
The young girl was taken to a nearby hospital, and is in stable condition. The Inquisitr reported that Ava started school in a wheelchair, and may walk with a limp for the rest of her life… and will likely forever mistrust the police…
- It Begins – Managed High Yield Bond Fund Liquidates After 17 Years
Since inception in June 1998, UBS' Managed High Yield Plus Fund survived through the dot-com (and Telco) collapse and the post-Lehman credit carnage but, based on the press release today, has been felled by the current credit cycle's crash. After 3 years of trading at an increasingly large discount to NAV, and plunging to its worst levels since the peak of the financial crisis, the board of the Fund has approved a proposal to liquidate the Fund. While timing is unclear, this is the worst case for an increasingly fragile cash bond market as BWICs galore are set to hit with "liquidty thin to zero."
Having survived 17 years…
It's Over… (as The Fund Statement reads):
Managed High Yield Plus Fund Inc. (the "Fund") (NYSE:HYF) announced today that the Board of Directors (the “Board”) of the Fund has approved a proposal to liquidate the Fund in 2016, subject to shareholder approval.
After careful deliberation and a thorough review of the available alternatives, and based upon the recommendation of UBS Global Asset Management (Americas) Inc. (“UBS AM”), the Fund’s manager, the Board has determined that liquidation and dissolution of the Fund is in the best interests of the Fund. A proposed plan of liquidation will be submitted for the approval of the Fund’s shareholders at a special shareholders meeting of the Fund, which will be scheduled to be held in April 2016. If the shareholders approve the proposed plan, the liquidation and dissolution of the Fund will take place as soon as reasonably practicable, but in no event later than December 31, 2016 (absent unforeseen circumstances).
Further information regarding the liquidation proposal, including the plan of liquidation, will be included in the proxy materials that will be mailed to the Fund’s shareholders in advance of the shareholders meeting.
* * *
…discussing illiquid corporate credit markets is easier if you find yourself among polite company. You see, the lack of liquidity in the secondary market for corporate bonds is a somewhat benign discussion because although it unquestionably stems from a noxious combination of regulatory incompetence and irresponsible monetary policy, myopic corporate management teams and the BTFD crowd, not to mention ETF issuers, have also played an outsized role, so there’s no need to lay the blame entirely on the masters of the universe who occupy the Eccles Building and on the "liquidity providing" HFT crowd that’s found regulatory capture to be just as easy as frontrunning.
But while explanations for the absence of liquidity vary from market to market, the response is becoming increasingly homogenous. Put simply: market participants are simply moving away from cash markets and into derivatives. Where market depth has disappeared, it’s become increasingly difficult to transact in size without having an outsized effect on prices. This means that for big players – fund managers, for instance – selling into ever thinner secondary markets is a dangerous proposition. And not just for the manager, but for market prices in general.
In Treasury markets, traders have turned to futures to mitigate illiquidty…
…while corporate bond fund managers utilize ETFs and other portfolio products to avoid trading the underlying assets…
With the stage thus set, Bloomberg has more on the move to smaller trades and cash market substitutes:
Sometimes less is more. At least according to investment managers trying to navigate Europe’s credit markets.
TwentyFour Asset Management capped a bond fund to new investors at 750 million pounds ($1.2 billion) and JPMorgan Asset Management, which is marketing a 128 million-pound fund, said smaller investments are more flexible in a sell-off. Other managers are also limiting the size of their trades and using derivatives to avoid getting trapped in positions.
It’s become more difficult to buy and sell securities as Greece’s financial crisis curbs risk taking and dealers scale back trading activity to meet regulations introduced since the financial crisis. The Bank for International Settlements warned of a "liquidity illusion" in June because bond holdings are becoming concentrated in the hands of fund managers as banks pull back.
"Liquidity is generally poor in corporate bond markets and in the U.K. market it’s thin to zero," said Mike Parsons, head of U.K. fund sales at JPMorgan Asset Management in London. "You don’t want to be in a gigantic fund where there’s potential for a lot of investors rushing for the exit at the same time. Smaller funds are more nimble."
"Without enough strong liquidity, it’s hard to execute bond trades in sufficient size or price to move portfolio risk around quickly or cheaply," he said. "The bigger the position, the harder it is to find enough liquidity to sell it or buy it."
Liquidity in credit markets has dropped about 90 percent since 2006, according to Royal Bank of Scotland Group Plc. That’s because dealers are using less of their own money to trade as new regulation makes it less profitable.
Euro-denominated corporate bonds got an average of 5.3 dealer quotes per trade last week, up from 4.5 recorded in January and compared with a peak of 8.8 in 2009, according to Morgan Stanley data. That’s based on dealer prices compiled by Markit Group Ltd. for bonds in its iBoxx indexes.
Liquidity is especially bad in the U.K. corporate bond market, which is being abandoned by companies looking to take advantage of lower borrowing costs in euros and investors seeking securities that are easier to buy and sell.
NN Investment Partners said it seeks to manage difficult trading conditions by diversifying positions and capping trade size. The Netherlands-based asset manager avoids owning large concentrations of a single bond and uses derivatives such as credit-default swaps or futures that are easier to buy and sell, said Hans van Zwol, a portfolio manager.
"We really want to stay away from positions we can’t get out of," he said.
The conundrum here is that the more reluctant market participants are to venture into increasingly illiquid cash markets, the more illiquid those markets become.
And here are the fund's largest holdings…
* * *
Of course, this should not be a total surprise, in light of the near-record up/downgrade ratio…
Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis, and measures of debt relative to cash flow are rising.
Standard & Poor’s Ratings Services downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009, compared with just 172 upgrades.
Deteriorating fundamentals…
U.S. companies have increased borrowing to levels exceeding those just before the financial crisis, as firms pursue big acquisitions and seek to boost stock prices by buying back shares. According to one metric, the ratio of debt to earnings before interest, taxes, depreciation and amortization for companies that carry investment-grade ratings, meaning triple-B-minus or above, was 2.29 times in the second quarter. That’s higher than the 1.91 times in June 2007, just before the crisis, according to figures from Morgan Stanley.
“We’re seeing more widespread weakness across more industry sectors in the U.S.,” Ms. Vazza said. “It’s become broader than just the commodity story.”
“The metrics that you measure health and credit by have peaked a while ago,” said Sivan Mahadevan, head of credit strategy at Morgan Stanley. “They are beginning to deteriorate.”
* * *
And as we noted earlier, the credit cycle has well and truly rolled over…
And no lesser market veteran than Art Cashin is concerned, What are the signals you are looking for to stay on top in such a market?
I continue to monitor the high yield market and see where that goes. The high yield market has been of some concern of the last several weeks. If that begins to show appreciable weakness than I would think the caution flags stay up.
Charts: Bloomberg
- 'Socialist' Sanders Vs 'Crony' Clinton: First Democratic Debate Begins – Live Feed
Admittedly it's not Mayweather-Pacquiao, but Las Vegas is buzzing ahead of tonight's rumble-in-the-jungle between Bernie and The Battle-axe. While Joe Biden remains the most notable absentee (or will he?) there are three other 'debaters' to carry water and towels for Hillary and Bernie as they drag one another left-er and left-er and more populist-er. In the pre-fight Sanders has lobbed some awkward Iraq War questions at 'hawkish' Hillary but as Clinton's 2008 campaign manager notes, "she's rolled out Latinos for Hillary, Women for Hillary, and met the leadership of Black Lives Matter; she has checked a lot of boxes walking into this debate."
It's not different this time..
And it's getting worse…
Search interest shows them neck and neck…
* * *
This seemed to sum up the pre-show rather well…
"@StreckerJosh: The Hillary love fest on CNN is ridiculous. I feel bad for the other candidates…especially the non-criminal ones."
— Donald J. Trump (@realDonaldTrump) October 14, 2015
* * *
Live Feed (via CNN)… (click image below for link – if embed unavailable)
USA Today offers six things to watch for during the debate…
Hillary Clinton speaks in Council Bluffs, Iowa, on Oct. 7, 2015. (Nati Harnik, AP)
1. Steam from the Hillary grilling
If the CNN debate moderators treat this as their chance to grill Clinton on live TV instead of carrying out an actual debate where other candidates are allotted plenty of time to make their case, “Democrats will likely be frustrated,” said Pat Rynard, a former Democratic campaign staffer from Iowa.
Vice President Biden in the Oval Office on Oct. 7, 2015. (Mark Wilson, Getty Images)
2. The Biden shadow
Even if he’s not on the stage, “Joe is a real part of the debate,” said Democrat Patty Judge, a former Iowa lieutenant governor.
“Sadly,” added Rynard, “in terms of the media narrative, nothing in the debate may matter if Biden announces his intentions the next day and wipes out all the coverage. Hopefully that doesn’t happen, but it’s near when Biden has to make a decision for ballot purposes.”
Sen. Bernie Sanders speaks during a campaign event on Oct. 9, 2015, in Tucson, Ariz.
(Rick Scuteri, AP)3. Sanders’ fidelity to fixed talking points
The liberal messenger could miss an opportunity if he expounds only a dry, policy-heavy message, Democrats said.
“He really refuses to deviate much from his economic inequality shtick on the campaign trail — which, to be fair, is a very powerful message that has gotten him far,” said Rynard, who writes about presidential politics on the website Iowa Starting Line. “(But) debates tend to favor interaction and candidates quick on their toes who can give punchy responses.”
Hillary Clinton and Bernie Sanders. (AP)
4. Two debates in one
One debate will likely be a policy contest between Clinton and Sanders, both of whom have declined to stray into personal attacks, observers said.
“She will continue to move herself to the left in order to appeal to undecideds and to those who are leaning to Sanders but not firmly in his camp,” Judge said of Clinton. “She will also try to continue to distance herself from the Obama administration to give herself room to take on Biden if he gets into the race.”
The second debate could feature hard swings from the low-polling contenders, especially O’Malley, who has gotten increasingly personal in drawing contrasts with Clinton.
Watch for gun control, trade, banks and foreign policy to take center stage, said Michael Cheney, a professor of communication and economics at the University of Illinois at Springfield.
Martin O’Malley talks on stage during the New Hampshire Democratic Party State Convention on Sept. 19, 2015 in Manchester. (Scott Eisen, Getty Images)
5. O’Malley’s moment?
Many Democrats worry that Sanders’ “socialist” label and Clinton’s struggles with her email controversy would badly hinder them in the general election, Rynard said.
O’Malley has run a serious campaign and impressed Democrats who go see him. But he barely attracts national media coverage, and many voters haven’t noticed him yet.
Cutter said: “This is the last best chance for Martin O’Malley.”
O’Malley needs to pull votes from Sanders, she said. “If he doesn’t distinguish himself as the person more likely to achieve results for a progressive agenda, rather than just a protest,” Cutter said, “then he’s out.”
Democratic presidential candidates Jim Webb and Lincoln Chafee. (Getty Images)
6. The invisible Democrats
It’s now or never for Webb and Chafee, neither of whom do any real campaigning, Rynard said.
“At this point, they’re just taking up space,” he said.
Democrats said they’re hesitant to take either candidate seriously when even low-polling GOP candidates such as Rick Santorum, Bobby Jindal and Lindsey Graham throw energy into reaching out to early state voters.
But debates are fertile ground for earning a bump in the polls, strategists noted.
“The best debaters,” Sefl said, “are those who don’t look like they rehearsed their one-liners thousands of times, and who know how to demonstrate command of the issues without being the annoying kid from class who always raised their hand to every question.”
* * *
Spot The Difference…
We suspect this debate will be a little "drier" than The Trump Show, so here is a Drinking Game to make it a little more enjoyable…
And for the kids and non-drinkers…
Of course – as we noted earlier – the biggest 'donkey' in the room is…
- CLSA Just Stumbled On The Neutron Bomb In China's Banking System
Two weeks ago, using Macquarie data, we found something disturbing at China’s micro level: not only are a quarter of Chinese firms with debt unable to cover their annual interest expense currently…
…. but when just looking at the commodity sector, roughly half of all companies are in the same dire straits, as a result of the collapse in commodity prices which translates into a drop off in cash flow which makes just the annual all-in cash interest payment impossible .
Over the weekend, Hong-Kong based CLSA decided to take this micro-level data and look at it from the top-down. What it found was stunning.
According to CLSA estimates, Chinese banks’ bad debts ratio could be as high 8.1% a whopping 6 times higher than the official 1.5% NPL level reported by China’s banking regulator!
As Reuters reports, the estimate is based on analysis of outstanding debts for more than 2700 A-share companies (ex-financials) and their ability to repay loans. Or in other words, if one backs into the true bad debt, not the number given for window dressing purposes by Chinese “regulators”, based on collapsing cash flows, what one gets is a NPL that is nearly 10% of all outstanding Chinese debt.
Reuters has some more details on the methodology:
- Two consecutive years of a co’s interest coverage (EBITDA/interest expense) below 1x or losses for two successive years qualifies for debts to be treated as “bad” in CLSA’s analysis.
- By these measures, wholesale & retail and manufacturing sectors boast the highest implied NPLs at 21.1% and 15.8% respectively, taking into account total debt
- While China’s real estate sector has been the most aggressive in adding debt, profitability at developers in tier-1 cities has held up well, muting the overall NPLs for the sector
- Developers in tier-2 and tier-3 cities, however, show high implied NPLs
- As bad debts rise, burden falls on PBOC to ensure sufficient liquidity so that Chinese banks can gradually absorb the credit costs, CLSA says.
Yes, the PBOC’s burden most certainly rises, and what a burden it is: here’s why.
The chart below shows the history of total Chinese bank assets: as of the latest official data, the number is roughly $30 trillion.
If one very conservatively assumes that loans are about half of the total asset base (realistically 60-70%), and applies an 8% NPL to this number instead of the official 1.5% NPL estimate, the capital shortfall is a staggering $1 trillion.
In other words, while China has been injecting incremental liquidity into the system and stubbornly getting no results for it leading experts everywhere to wonder just where all this money is going, the real reason for the lack of a credit impulse is that banks have been quietly soaking up the funds not to lend them out, but to plug a gargantuan, $1 trillion, solvency shortfall which amounts to 10% of China’s GDP!
- The Fukushima Wasteland: "Terrifying" Drone Footage Of Japan's Abandoned Nuclear Exclusion Zone
While the world has had decades of opportunities to observe nature slowly reclaiming the consequences of human civilization, particularly at the site of the original nuclear disaster, Chernobyl, there has been far less media coverage for obvious reasons, of that other nuclear disaster, Fukushima, where as we reported last night, one year after giving up on its “ice wall” idea Tepco has renewed the strategy of encasing the radioactive sarcophagus in an ice wall.
It was not precisely clear why this time the idea is expected to work after it was nixed last summer.
What is clear is that something has to be done, because as renewed interest in the aftermath of the results of the 2011 disaster once again builds ahead of the 2020 Tokyo Olympics, the public is realizing just how vast the Japanese wasteland truly is.
And capturing just that, is this eerie drone overflight of the Fukushima graveyard shown in the clip below:
For those curious for more, here, courtesy of photographer Arkadiusz Podniesinski who donned protective gear to visit the “terrifying” – in his words – ghost towns of Futaba, Namie and Tomioka last month, we get an up close an personal photo essay of this generation’s Chernobyl.
This is what he found: supermarket aisles strewn with packets. A school blackboard covered with notes for an unfinished lesson. Cars tangled with weeds in an unending traffic jam.
These are eerie pictures from inside the 20km exclusion zone around Fukushima nuclear plant, courtesy of Guardian.
The photographer, Arkadiusz Podniesinski, stands on one of the main streets of Futaba. The writing above him says: “Nuclear energy is the energy of a bright future.”
A street that has been taken over by nature. Four years after the catastrophe – which drove 160,000 people from their homes – much of the region is still too dangerous to enter.
The KFC Colonel and mannequins left standing in a supermarket. “Here time has stood still, as if the accident happened yesterday,” says Podniesinski of the most-contaminated areas.
An aerial photograph of abandoned vehicles.
An aerial photograph of dump sites, taken by a drone. Contaminated radioactive topsoil from the fields has been bagged for removal and there have been efforts to clean deeper layers. To save space, the soil is stacked in layers.
A restaurant table with crockery left behind by guests. The huge task of decontaminating the area, site of the worst nuclear disaster since Chernobyl in 1986, continues. Thousands of workers move from street to street through villages, spraying and scrubbing the walls and roofs of houses.
Car bumpers overgrown with weeds. Some of the people Podniesinski spoke to doubt the official line that the area will be safe again in 30 years. “They are worried that the radioactive waste will be there for ever,” he says.
A classroom on the first floor in a school. There is still a mark below the blackboard showing the level of the tsunami wave. On the blackboard are words written by former residents, schoolchildren and workers in an attempt to keep up the morale of all of the victims, including “We can do it, Fukushima!”
- Is Washington Actually Trying To Start World War III?
Submitted by Michael Snyder via The Economic Collapse blog,
Why has Barack Obama airdropped 50 tons of ammunition into areas that “moderate rebels” in Syria supposedly control? This is essentially the equivalent of poking the Russians directly in the eyes. Much of this ammunition will end up in the hands of those that the Russians are attempting to bomb into oblivion, and so to Russia it appears that we are attempting to make their job much harder. And of course the truth is that there aren’t really any “moderate rebels” in Syria at all. Nearly all of the groups that are fighting are made up primarily of radical jihadists and/or hired mercenaries.
Personally, I don’t see anyone over there that you could call “the good guys”. At the end of the day, the U.S. supports just about anyone that wants to get rid of the Assad regime, and the Russians are working very hard to keep Assad in power. Just like the civil war in Ukraine, the conflict in Syria is in great danger of being transformed into a proxy war between the United States and Russia, and many fear that these conflicts could eventually be setting the stage for World War III.
The ferocity of Russian airstrikes in Syria has surprised observers all over the planet, and over the past couple of days these airstrikes have been extended to include some new areas…
Russian Air Forces have extended the range of their airstrikes on Islamic State positions in Syria to four provinces, focusing primarily on demolishing fortified installations and eliminating supply bases and the terrorists’ infrastructure.
Over the last 24 hours Russian aircraft have attacked terrorist positions in the Hama, Idlib, Latakia and Raqqa provinces of Syria. In total, 64 sorties targeted 63 Islamic State installations, among them 53 fortified zones, 7 arms depots, 4 training camps and a command post.
When I read reports like this, I am deeply troubled. The Obama administration claims that it has been bombing ISIS positions in Syria for over a year. So why in the world do these targets still exist?
Was the U.S. military incapable of finding these installations?
That doesn’t seem likely.
So why weren’t they destroyed long ago?
Did the Obama administration not want them destroyed for some reason?
What seems abundantly clear is that the Russians are doing what the Obama administration was either unwilling or unable to do. There is now mass panic among ISIS fighters, and thousands of them are fleeing the country…
An estimated 3,000 Islamic State fighters as well as militants from other extremist groups have fled Syria for Jordan fearing a renewed offensive by the Syrian army in addition to Russian airstrikes, a military official has told RIA news agency.
“At least 3,000 militants from Islamic State (IS, formerly ISIS/ISIL), al-Nusra and Jaish al-Yarmouk have fled to Jordan. They are afraid of the Syrian army having stepped up activities on all fronts and of Russian airstrikes,” the RIA source said.
The mainstream media in the United States is not talking much about this, are they?
But the U.S. media is reporting on this latest airdrop of ammunition to rebel groups in Syria. For example, the following comes from CNN…
U.S. military cargo planes gave 50 tons of ammunition to rebel groups overnight in northern Syria, using an air drop of 112 pallets as the first step in the Obama Administration’s urgent effort to find new ways to support those groups.
Details of the air mission over Syria were confirmed by a U.S. official not authorized to speak publicly because the details have not yet been formally announced.
C-17s, accompanied by fighter escort aircraft, dropped small arms ammunition and other items like hand grenades in Hasakah province in northern Syria to a coalition of rebels groups vetted by the US, known as the Syrian Arab Coalition.
If you were the Russians, how would you feel about this?
I know how I would feel.
And just as Joe Biden has previously admitted, the “moderate middle” in Syria simply does not exist. The following is an extended excerpt from a piece that was originally written by investigative journalist Nafeez Ahmed…
The first Russian airstrikes hit the rebel-held town of Talbisah north of Homs City, home to al-Qaeda’s official Syrian arm, Jabhat al-Nusra, and the pro-al-Qaeda Ahrar al-Sham, among other local rebel groups. Both al-Nusra and the Islamic State have claimed responsibility for vehicle-borne IEDs (VBIEDs) in Homs City, which is 12 kilometers south of Talbisah.
The Institute for the Study of War (ISW) reports that as part of “US and Turkish efforts to establish an ISIS ‘free zone’ in the northern Aleppo countryside,” al-Nusra “withdrew from the border and reportedly reinforced positions in this rebel-held pocket north of Homs city”.
In other words, the US and Turkey are actively sponsoring “moderate” Syrian rebels in the form of al-Qaeda, which Washington DC-based risk analysis firm Valen Globals forecasts will be “a bigger threat to global security” than IS in coming years.
Last October, Vice President Joe Biden conceded that there is “no moderate middle” among the Syrian opposition. Turkey and the Gulf powers armed and funded “anyone who would fight against Assad,” including “al-Nusra,” “al-Qaeda in Iraq (AQI),” and the “extremist elements of jihadis who were coming from other parts of the world”.
In other words, the CIA-backed rebels targeted by Russia are not moderates. They represent the same melting pot of al-Qaeda affiliated networks that spawned the Islamic State in the first place.
It has been well documented that many of these so-called “moderate rebel groups” in Syria have fought alongside ISIS and have sold weapons to them. So this false dichotomy that Barack Obama keeps trying to sell us on is just a giant fraud. The following comes from a recent Infowars report…
In September, 2014 a commander with the FSA admitted cooperating with ISIS and the al-Nusra Front.
“We are collaborating with the Islamic State and the Nusra Front by attacking the Syrian Army’s gatherings in … Qalamoun,” Bassel Idriss said. “Let’s face it: The Nusra Front is the biggest power present right now in Qalamoun and we as FSA would collaborate on any mission they launch as long as it coincides with our values.”
In July of 2014 a report in Stars and Stripes documented how the 1,000 strong Dawud Brigade, which had previously fought alongside the FSA against al-Assad, had defected in its entirety to join ISIS.
The same month factions within the FSA — including Ahl Al Athar and Ibin al-Qa’im — pledged services to the Islamic State.
Members of the Islamic State claim to cooperate with the FSA and buy weapons provided by the U.S.
“We are buying weapons from the FSA. We bought 200 anti-aircraft missiles and Koncourse anti tank weapons,” ISIS member Abu Atheer told al-Jazeera. “We have good relations with our brothers in the FSA. For us, the infidels are those who cooperate with the West to fight Islam.”
U.S. anti-tank weapons are playing a critical role in the Syrian conflict. As reported by the Washington Post, U.S.-made anti-tank missiles are being used by the rebels to destroy lots of Russian-made tanks that are being used by the Syrian army…
So successful have they been in driving rebel gains in northwestern Syria that rebels call the missile the “Assad Tamer,” a play on the word Assad, which means lion. And in recent days they have been used with great success to slow the Russian-backed offensive aimed at recapturing ground from the rebels.
Since Wednesday, when Syrian troops launched their first offensive backed by the might of Russia’s military, dozens of videos have been posted on YouTube showing rebels firing the U.S.-made missiles at Russian-made tanks and armored vehicles belonging to the Syrian army. Appearing as twirling balls of light, they zigzag across the Syrian countryside until they find and blast their target in a ball of flame.
Like I said earlier, this is looking more and more like a proxy war between the United States and Russia.
Could that be what Obama actually wants?
* * *
Obama is poking China in the eyes lately too. CNN is reporting that U.S. warships may soon be sailing into territorial waters around the Spratly Islands. These are islands that the Chinese government claims ownership over, but the U.S. government disputes that claim, and Obama seems determined to flex his muscles in the area…
The United States (US) may soon deploy war ships near China’s artificial islands in the South China Sea.
It wants to send a message that it does not recognize China’s territorial claims over the area.
This is according to a Financial Times report quoting a senior U.S. official who said its ships will sail within 12-nautical-mile zones that China claims as its territory around the Spratly Islands within the next two weeks.
If Obama sends warships into that area, there is a very real chance that they could get shot at. According to Newsweek, the Chinese are saying that they will not permit U.S. ships to violate those territorial waters under any circumstances…
“We will never allow any country to violate China’s territorial waters and airspace in the Spratly Islands, in the name of protecting freedom of navigation and overflight,” Foreign Ministry spokeswoman Hua Chunying said in response to a question about possible U.S. patrols. “We urge the related parties not to take any provocative actions, and genuinely take a responsible stance on regional peace and stability.”
Such exchanges appear to be moving China and the U.S. toward a much feared, yet long expected, military confrontation. Just as unsettling, both sides seem confident they can prevail.
Over the past couple of years our relations with China have really gone downhill very rapidly, and if the trading relationship between the two largest economies on the planet breaks down, that would have massive implications for the entire global economy.
In addition to everything above, the civil war in Ukraine continues to rage on. The United States funded, equipped, trained and organized the forces that violently overthrew the democratically-elected government in Ukraine, and then once those thugs (which actually included some neo-Nazis) took power, the Obama administration immediately recognized them as the legitimate government of Ukraine.
The Russians were absolutely infuriated by this, and they have been providing soldiers, equipment and supplies to the rebel groups that are fighting back against this new government. Of course the Russians deny that they are doing this, but it is exceedingly obvious that they are.
The rebel groups that the Russians have been backing have been doing very well and have been steadily taking ground, and this is not how the power brokers in D.C. envisioned things playing out in Ukraine. So in a desperate attempt to shift the momentum of the conflict, a bill is going through Congress that would provide “lethal military aid” to the government in Kiev. Initially the bill would have provided 200 million dollars in lethal aid, but now it has been upped to 300 million dollars. There are some that believe that the final figure will be significantly higher.
Once this bill gets passed, it will be an extremely important event. For the Russians, it will mean crossing a red line that never should have been crossed. You see, the truth is that Ukraine is Russia’s most important neighbor. Just imagine how we would feel if the Russians helped overthrow Canada’s government and then start feeding weapons to the new pro-Russian government that they helped install. That is exactly how the Russians view our meddling in Ukraine.
Earlier this year, I wrote an article in which I discussed an opinion poll that showed that 81 percent of all Russians now view the United States negatively, and only 13 percent of Russians have a positive view of this nation. Not even during the height of the Cold War were the numbers that bad.
The stage is being set for World War III, but most Americans are completely and totally oblivious to all of this because they are so wrapped up in their own little worlds.
Most Americans still seem to assume that the Russians and the Chinese are our “friends” and that any type of conflict between major global powers is impossible.
Well, the truth is that conflict has already begun in Ukraine and Syria, and tensions are rising with each passing day.
It won’t happen next week or next month, but we are on the road to World War III.
- ON To WaSHiNGToN…
- HSBC Is Now "Highly Risk Averse" Amid Growth Worries, Loss Of Central Bank Put
Earlier today, we brought you one graphic from HSBC which shows that based on at least one metric, the world is already in recession:
That graph is part of a larger thesis HSBC has developed about how a confluence of circumstances have conspired to make asset allocation a somewhat vexing task. The so called “tricky trinity” is comprised of the following three factors:
- Global growth is decelerating
- The absence of a policy put
- Risk premia offers a limited buffer
These are all ideas that we have of course discussed at great length.
As for decelerating global growth, here’s what we said earlier:
…the entire world seems to be decelerating in tandem with China’s hard landing (which most recently manifested itself in another negative imports print).
For evidence of this, one might look to the WTO, whose chief economist Robert Koopman recently opined that “it’s almost like the timing belt on the global growth engine is a bit off or the cylinders are not firing.” And then there’s the OECD, which recently slashed its global growth forecasts. The ADB joined the party as well, citing China, soft commodity prices, and a strong dollar on the way to cutting its regional outlook. Even Citi has jumped on the bandwagon with Willem Buiter calling for better than even odds of a worldwide downturn.
And here is HSBC:
At this point we find few investors that believe growth is likely to accelerate. Rather, consensus growth expectations have moderated significantly in recent months. Our leading indicators found a peak in June and have since declined gradually. As we pointed out in our most recent publication, the downturn has been fairly broad-based with peaking or past peak cyclical data in all regions and most types of data. Only consumer data continues to improve. However, given the broad-based decline in other data we doubt that consumers are going to be able to withstand this cyclical story.
The global PMI story is similar and we can now see that the manufacturing sector numbers have fallen to a 26-month low, which has resulted in a deterioration of the service sector as well. That said, global PMI was still at an expansionary 52.8 in September. Growth on this metric is low but still positive. In effect, September data verifies the slowdown that our leading indicators started to highlight in July. While the current decline in manufacturing data is clearly in the minds of many investors, the slowdown in the service sector PMI is a cause for concern. That said, if our leading indicators are correct, we are unlikely to see a stabilisation of global growth numbers over the coming 3-6 months. This presents global asset markets with a significant growth problem at the time of fairly limited risk premia in US equity markets, for example.
On the absence of a policy put, the message is simple: central banks have lost credibility, but the market is still largely dependent on QE. The BoJ and the ECB will eventually have trouble finding enough supply to purchase, which means that they will have literally monetized everything that isn’t tied down and yet still, both the eurozone and Japan are mired in deflation. We’ve seen the same dynamic unfold in Sweden where, for the first time, QE actually broke and just three months later, the Riksbank is being forced to look at purchasing muni bonds just to avoid the possibility that the scarcity of collateral created by central bank purchases doesn’t end up causing things (yields, the SEK) to move in the “wrong” direction (i.e. higher). And of course there’s the Fed, which is stuck in the impossible position of accidentally accelerating EM capital outflows whether it hikes or whether it holds. In a market that’s still largely hooked on stimulus, it is not good when central planners run out of options, creditbility, and lose the narrative all at the same time. And that is exactly what’s happening now.
Back we go to HSBC:
Clearly, in this slow growth outlook it is easy to rely on central banks to provide an economic put. However, as our eurozone economics and fixed income strategy team highlighted in The ECB & QE: Constraints will test credibility from 22 September 2015, there are constraints on what the ECB can do. The chief limitations are negative yields and the relative lack of Bunds in a capital key driven QE program. Most notably, it is worth highlighting that such constraints limit the ability of the ECB to defend a weak EUR or to reignite growth and inflation expectations.
The ECB, however, isn’t the only central bank that faces constraints to its unconventional monetary policy program. Investors continually question the limits of the BoJ’s JPY80trn asset purchase program whilst giving the benefit of the doubt. At present the BoJ owns 30% of JGBs outstanding but at the current run rate that would reach 50% by December 2018. How long can the BoJ keep buying 100% of the government’s new deficit issuance? The BoJ will have to do this to meet its asset purchase target in 2015. At the same time, it is not clear who will sell to the BoJ going forward as the GPIF is close to being done with its rebalancing, whilst life insurers and megabanks are limited in their ability to reduce JGB dependence due to ALM and regulatory considerations.
As we look at the success of QE it appears that the marginal benefit of further monetary policy is constrained. As this prospect starts to affect consumers and corporates alike, their belief in economic fortunes starts to become more volatile. This behavioural effect on global growth is not fully priced into financial markets, in our view. If anything, the distribution of future economic outcomes is becoming more extreme.
Finally, on risk premia:
Monetary policy in the post crisis period has been like one giant blanket that has kept investors sheltered from the stiff breeze of structural stagnation. This blanket has also encouraged investors to move further and further into riskier assets. In effect, risk premia has slowly been pushed down. The eurozone crisis and now the EM crisis highlight that depressed risk premia are unlikely to unravel in a slow and gradual manner. Rather, once risk premia reach unsustainable levels, then only one proverbial straw will break the camel’s back. At the moment, EM assets are in the maelstrom of this unravelling.
There, ladies and gentlemen, is the “tricky trinity” and in a nutshell, the takeaway is fairly simple, so we’ll just leave you with the bank’s conclusion:
Going into year-end and looking at the financial landscape for 2016, we cannot help but remain highly risk averse.
So sell it all we suppose. Or don’t.
- How To Create A Gun-Free America In 5 'Easy' Steps
Submitted by Austin Bragg via Reason.com,
Want to create a gun-free America in 5 easy steps?
Here's all there is to it:
Step 1: Elect. For a gun-free America, the first thing you'll need is two-thirds of Congress. So elect a minimum of 67 Senators and 290 Representatives who are on your side.
Step 2: Propose. Then, have them vote to propose an amendment to the Constitution which repeals Second Amendment gun rights for all Americans.
Step 3: Ratify. Then convince the legislators of 38 states to ratify that change.
At this point, the Second Amendment is history, but you've done nothing to decrease gun violence. All you've done is remove the barrier for Congress to act.
Step 4: Legislate. You need to enact "common sense" reform.
You can try to do what Australia did and…ban all guns? That's not at all what they did, but whatever, fuck it. Go big or go home, right?
It will have to be passed by Congress and signed by the president.
Great! The law is passed and guns are now illegal. The only thing left to do is…
Step 5: Enforce. Guns won't just disappear because you passed a law. You need to confiscate some 350 million guns scattered among 330 Million Americans.
Sure, you can try a buy-back program like Australia, but like Australia that will still leave behind anywhere from 60 percent to 80 percent of privately owned firearms.
The rest you have to take.
You'll need the police, the FBI, the ATF or the National Guard—all known for their nuanced approach to potentially dangerous situations—to go door-to-door, through 3.8 million square miles of this country and take guns, by force, from thousands, if not, millions of well-armed individuals. Many of whom would rather start a civil war than acquiesce.
So inevitably gun violence, which is currently at a historic low, will skyrocket.
But that is how you get a gun-free America in five easy steps.
(For more in that vein, read this piece by Charles C.W. Cooke of National Review.)
- Russia Releases New Airstrike Videos, Says "Most" ISIS Ammo, Heavy Vehicles Destroyed
Don’t be deceived, there are always two sides (or more) to every propaganda war and as we’ve been careful to mention on the way to critiquing US foreign policy in Syria, just because what Washington says about the war is so completely absurd as to warp the mind, that doesn’t thereby mean that everything which comes out of The Kremlin’s spin team should be taken as gospel. So when you see the steady stream of Russian Defense Ministry videos that purport to show the destruction of an ISIS stronghold or weapons cache which supposedly has some strategic significance, you should take it with a grain of salt.
Having dispensed with the customary disclaimer, we’ll move swiftly to say that although it might not be easy to tell what, Russia is certainly blowing up something in Syria and the videos – especially when viewed in light of how inept they make the US air force look by comparison – are always worth a look.
Below, we present the latest videos from Russia’s airstrikes in Syria. One interesting thing to note is that this is Moscow claiming to have destroyed a large portion of ISIS’ ammo right around the time the US paradropped 50 tons of ammo to the “Free Syrian Army.” Time for another caveat: correlation does not equal causation.
Without further ado:
And here’s RT with a bit of color on what you’re supposedly watching there:
Islamic State militants have lost “most” of their ammunition, heavy vehicles and equipment in Russian airstrikes, the Defense Ministry said Tuesday. At least 86 ISIS targets were hit during 88 sorties in the last 24 hours.
Sukhoi Su-24M and Su-34 bombers, together with Su-25SM ground support aircrafts targeted Islamic State (IS, formerly ISIS/ISIL) sites in the provinces of Raqqah, Hama, Idlib, Latakia and Aleppo, according to the ministry. The jets hit command posts, ammunition and armament depots, military vehicles, plants producing explosives, field camps and bases.
Su-24M bombers also targeted an IS field headquarters near the city of Anadan in the province of Aleppo from which the terrorists coordinated their activities. There was an ammunition depot at the site, the ministry said.
One more IS field post was destroyed near the city of al-Bab in Aleppo Province.
#SYRIA Russian air strikes resulted in elimination of the most part of #ISIS ammunition, heavy vehicles and equipment
— ?????????? ?????? (@mod_russia) October 13, 2015
We’ll close with a quote from… well… from who else?
“[Western countries] say we are bombing false targets. On Sunday US air forces targeted a power station and a transformer in Aleppo. Why did they do it? Whom did they punish? What was the sense? That is unclear,” Russian President Vladimir Putin said on Tuesday.
- What Keeps Neil Howe Up At Night: An Interview With The Author Of "The Fourth Turning"
“Underproduction, undercapacity, deflation, currency wars, demographics, falling birth rates” – those are the biggest fears which Fourth Turning author, and head of Saeculum Research Neil Howe, lays out in this interview excerpt courtesy of RealVision TV.
While Howe goes on an interesting tangent on the one topic that will surely be absent from all presidential debates, namely the fact that migration into the US is “actually in huge decline“, and that the largest immigrant group into the US is Asian (after all someone has to buy those luxury NYC condos), what is more interesting are Howe’s parallels of the current economic situation to the Great Depression: “whole areas of the world no longer having a global superpower, no longer having global institutions that enforce orders so you have these huge areas of failed states and power vacuums and regional authoritarian governments – that’s exactly what people saw in the 1930s and we’re seeing it now in Russia, China, Iran doing whatever they want.”
He continues:
“Another interesting economic parallel is the crisis of overvaluation: in the 1930s it was the gold standard, for southern Europe it’s the Euro, and for China they have a fixed rate regime that they’re attending to too little too late. It’s the nature of an authoritarian regime to always to do too little and too late. Everyone is too timid to tell the person in power “this is what you need to do.” I think China faces an absolute choice between a huge devaluation to restimulate its economy, because becoming competitive I think the carry trade is going to go and I think even domestic savings are going to flee. If they don’t do that they have very few options left at this point. They have $3.5 trillion of reserves – you’ll be amazed how quickly that goes. So that’s another parallel.
Of course no Howe interview would be complete without some observations on generational shifts:
“And then there are some fascinating cultural parallels with the 1930s. Another thing that was true in the 1930s was that after the early 30s you saw a continuous decline in the crime rate. Crime began falling over the the course of the 30s: substance abuse, alcohol abuse began to fall, and this is true with Millennials today. And I tell people that Millennials are responsible today for the most dramatic and rabid decline in youth violence in American history. This is why so many young people are moving to cities, because they are safe again.”
Will this trend reverse if and when the economy stumbles, as the full parallels to the sad conclusion of the 1930s play out?
The answer is unclear, but for a fascinating, broad and unconventional perspective on where the economy is headed from one of the cult non-establishment figures, watch the full interview on RealVision’s website.
Raoul Pal has generously given Zero Hedge readers an exclusive weekly trial so both the full Howe, and all the other fascinating interviews in RealVision’s database can be watched in their entirety. To do so, please click here and use the “zerohedge” trial code, at which point the full Howe interview can be seen via this link.
Here is the excerpt with Neil Howe excerpt :
- Oct 14 – Ex-Fed's Fisher: "FOMC has egg on its face"
EMOTION MOVING MARKETS NOW: 38/100 FEAR
PREVIOUS CLOSE: 44/100 FEAR
ONE WEEK AGO: 30/100 FEAR
ONE MONTH AGO: 14/100 EXTREME FEARONE YEAR AGO: 0/100 EXTREME FEAR
Put and Call Options: FEAR During the last five trading days, volume in put options has lagged volume in call options by 26.86% 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 fear on the part of investors.
Market Volatility: NEUTRAL The CBOE Volatility Index (VIX) is at 17.67. This is a neutral reading and indicates that market risks appear low.
Stock Price Strength: FEAR The number of stocks hitting 52-week lows exceeds the number hitting highs and is at the lower end of its range, indicating 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)
CRUDE OIL (CL) | GOLD (GC) | 10 YR T NOTE | 2 YR T NOTE | 5 YR T NOTE | 30 YR TREASURY BOND | SOYBEANS | CORN
MEME OF THE DAY – WHEN DR. T SPEAKS…
UNUSUAL ACTIVITY
VXX OCT WEEKLY4 21.5 CALLS7K+ @$.58
LOCK NOV 8 PUT Activity on the BID side
LULU NOV 55 CALL Activity 2500 block @$1.20 on offer
EDGE SC 13D Filed by NEW LEAF Ventures .. 8.2%
TROX .. SC 13G Filed by Putnam Investments .. 13.2%
HEADLINES
Fed’s Bullard: Liftoff is appropriate despite challenges
Fed’s Tarullo: US Rate hike likely not appropriate
Ex-Fed’s Fisher: FOMC has egg on its face
Fed Discount Rate Mins: 8 votes to hike rate to 1% (vs 5 in July)
NY Fed: Consumers See Lower Inflation, Spending Growth –BBG
US NFIB Small Business Optimism Sep: 96.1 (est 95.5; prev 95.9)
ECB’s Mersch: Near-term inflation may continue to hover near zero
BoE new boy Vlieghe says weak inflation may delay rate rise
BoE’s McCafferty: Downside pressures in prices seen as transitory
Venezuela: Opec technical meeting to be held 21/Oct in Vienna; non-opec members Brazil, Russia, Norway among invitees
GOVERNMENTS/CENTRAL BANKS
Fed’s Bullard: Liftoff is appropriate despite challenges –ForexLive
Ex-Fed’s Fisher: FOMC has egg on its face –CNBC
Fed’s Tarullo: Rate hike likely not appropriate –CNBC
NY Fed: Consumers See Lower Inflation, Spending Growth –BBG
Fed Discount Rate Mins: 8 votes to hike rate to 1% (vs 5 in July)
Fed Discount Rate Mins: 3 voted to hold discount rate at 0.75%
Fed Discount Rate Mins: Minneapolis again voted to cut discount rate to 0.5%
ECB’s Mersch: Near-term inflation may continue to hover near zero –Rtrs
BoE new boy Vlieghe says weak inflation may delay rate rise –MW
BOE’s McCafferty wants rates at a level that they can cut again –ForexLive
BoE’s McCafferty: Downside pressures in prices seen as transitory –FXstreet
FIXED INCOME
Prices rise on growth fears, bets on later Fed rate hike –Rtrs
Treasuries Wilder Than Ever as Ultrafast Bond Traders Rise Up –BBG
Italian-German Bond Yield Spread Narrows to Least Since April –BBG
China picks London for renminbi debt issue –Eftee
Putin: IMF should provide additional $3 bln loan to Ukraine to repay its debt to Russia –TASS
FX
USD: Dollar bulls vexed by Federal Reserve rate outlook –FT
COMMODITY FX: Weak Chinese data bogs down commodity FX –ET
CNY: PBoC fixed yuan higher for an 8th straight day –FT
GBP: Deflation takes pound down after M&A lift –FT
ENERGY/COMMODITIES
WTI futures settle 0.9% lower at $46.66 per barrel
CRUDE: IEA: Oil market glut will persist through 2016 as demand growth slows –FT
METALS: Copper Prices Fall After Weaker-Than-Expected Chinese Import Data –WSJ
EXCHANGES: China’s largest commodities exchange to build intl platform –FT
USDA: NZ milk production seen declining –BBG
EIA Drilling Productivity Report for October
EQUITIES
EARNINGS: J&J got slammed by the strong dollar again –BI
EARNINGS: J&J plans to buy back shares up to $10bn –Yahoo
M&A: GE to sell $30 bln specialty finance business to Wells Fargo –Rtrs
M&A: Diageo to announce sale of wines unit –Sky
M&A: EMC to pay Dell $2 billion as breakup fee in go-shop period –Yahoo
LEGAL: SEC Prepares Civil Charges Against Mondelez in Cadbury Probe –WSJ
AUTOS: Volkswagen announces ?750m spending cuts to fund product revamp –Guradian
AUTOS: VW gloom hits German economic sentiment –FT
PRIVATISATION: UK government sells ?591m stake in Royal Mail –FT
TECH: Twitter Slashing Costs With Workforce Layoffs –Sky
TECH: Bloomberg: U.S. Wants To End Apple E-Book Antitrust Monitoring –Nasdaq
BANKS: Citi dials down risky block trading amid market turmoil –Rtrs
EMERGING MARKETS
Economists gloomier on Brazil’s inflation outlook –FT
- 'America The Herd' Is Ever At Odds With 'America The Civilization'
Submitted by Dan Sanchez via DanSanchez.me,
“Make America Great Again” is the slogan for Donald Trump’s phenomenally popular presidential campaign.
With it, Trump has tapped a deep well of frustration among American conservatives about the direction of the country under President Barack Obama.
This longing for lost greatness especially concerns American foreign policy (although upon close examination Trump’s actual statements are less hawkish than those of his Republican rivals).
Conservatives are sick of America looking weak on the world stage. They sense that Obama has transmitted his own lack of virility to the nation as a whole.
Many blame the spectacular and gruesome rise of ISIS on Obama for having pulled out of Iraq. The bad guys are on the rise, because our leader wasn’t “man enough” to stay and stand up to them. As the great George Carlin said:
“This whole country has a manhood problem. Big manhood problem in the USA. You can tell from the language we use; language always gives you away. What did we do wrong in Vietnam? We pulled out! Not a very manly thing to do is it?”
Masculine Trump promises to be different. Oh sure, he wouldn’t have invaded Iraq in the first place. But if he had inherited the occupation, he wouldn’t have pulled out until he had taken all of the country’s oil. A “real man” doesn’t leave until he gets what he wants.
And now, so this narrative goes, Obama has “yielded,” on behalf of America, to both Cuba and Iran. Trump, who presents himself as a masterful business negotiator, sneered at Obama’s nuclear deal with Iran as, “one of the weakest contracts I’ve seen of any kind.”
But perhaps most emasculating of all is Obama’s feeble showing next to the famously tough Russian president Vladimir Putin. Virile Vlad has taken Obama’s lunch money time and again.
Putin frustrated Obama’s plan to launch an air war on Syria by calling Secretary of State John Kerry’s bluff over a chemical weapons deal with the Syrian regime.
Putin countered the Washington-backed coup in Ukraine by swiftly annexing its Crimean province without firing a shot.
And now, in a blitzkrieg campaign, Putin seems to be smashing in a matter of days the ISIS menace that Obama declared war on eight months ago.
Many Americans look at Putin with a mix of fear, hate, and envy. They wish they had a leader like him, and hope Trump will fill that role. Trump himself has predicted that as president he will get along with his Russian counterpart, because Putin will respect him (perhaps as a fellow alpha male). In contrast, Trump added, Putin, “has absolutely no respect for President Obama. Zero.”
It is conceivable that Obama feels he has something to prove as a spindly former community organizer, and that is why he has been susceptible to be pressured into foreign interventions by the neocons (like Victoria Nuland of the Ukraine debacle) and liberal interventionists (like Hillary Clinton, Susan Rice, and Samantha Power of the Libya debacle) in his administration (especially the above female ones), as well as his steely-eyed generals (like Stanley McChrystal and David Petraeus of the Afghan Surge debacle).
And perhaps Obama’s non-martial inclinations have curbed his commitments to these foreign misadventures, preventing them from being quite as grandly calamitous as Bush’s, while at the same time making him look timorous and indecisive.
It may be tempting to think that Trump is comfortable enough in his own masculinity to not start fights he can’t finish, and that this is why he strays from the GOP script on Iraq, Syria, and Russia.
But ultimately it is a waste of time to pore over what candidates say on the hustings. Politicians are generally inveterate liars and manipulators whose policies in office rarely match their rhetoric, and often don’t even resemble it.
What is important is why the rhetoric is successful: why it resonates with the public and what that says about the spirit of the times, which is what actually limits or enables the rapacity of government.
What exactly are conservatives longing for when they clamor to Make America Great Again? What do they even mean by “America”?
*****
It could be any of three senses, each of which was expounded by the great American journalist Randolph Bourne in his 1918 essay “The State.”
They could mean America the Country. According to Bourne, when speaking of country or nation:
“We think vaguely of a loose population spreading over a certain geographical portion of the earth’s surface, speaking a common language, and living in a homogeneous civilization. Our idea of Country concerns itself with the non-political aspects of a people, its ways of living, its personal traits, its literature and art, its characteristic attitudes toward life.”
Or they could mean America the State. According to Bourne:
“The State is the country acting as a political unit, it is the group acting as a repository of force, determiner of law, arbiter of justice.”
It is important to note that Bourne’s idea of the State is distinct from his idea of government, which is:
“…the machinery by which the nation, organized as a State, carries out its State functions. Government is a framework of the administration of laws, and the carrying out of the public force. (…) That the State is a mystical conception is something that must never be forgotten. Its glamor and its significance linger behind the framework of Government and direct its activities.”
And in wartime, the State eclipses all else, as the alarmed populace amalgamates into a herd, huddling and stampeding in unison under the guiding rod of government-as-shepherd:
“Wartime brings the ideal of the State out into very clear relief, and reveals attitudes and tendencies that were hidden. (…) For war is essentially the health of the State. The ideal of the State is that within its territory its power and influence should be universal. (…) And it is precisely in war that the urgency for union seems greatest, and the necessity for universality seems most unquestioned. The State is the organization of the herd to act offensively or defensively against another herd similarly organized. The more terrifying the occasion for defense, the closer will become the organization and the more coercive the influence upon each member of the herd.”
Bourne noticed a key problem for clearly thinking about these matters:
“The patriot loses all sense of the distinction between State, nation, and government.”
As a result, these terms have become thoroughly confused.
The terms “patriotism” and “nationalism” as used by today’s arch-conservatives refer to attitudes that used to be called “jingoism.” So, what is today called “country” in the sense of “patriotism” and “nation” in the sense of “nationalism” is actually what Bourne referred to as “the State.”
What is today called “the State” Bourne instead called “government.”
And what Bourne meant by “country” and “nation” is a concept so neglected today, that it doesn’t really have its own name at all.
It will clarify things if we adopt our own set of labels for Bourne's rigorous concepts: one that doesn’t confusingly contradict current usage as Bourne’s does, but also doesn’t have the deceptive Orwellian qualities of standard modern parlance.
Our meaning should be unmistakable if we speak of America the Civilization, America the Herd, and America the Regime.
Those who display the “Make America Great Again” injunction on baseball caps and bumper stickers are specifically hoping for a particular prospective government official to fulfill it. So, they are clearly not saying “Make the American Civilization Great Again.”
Yet they are also saying far more than “Make the American Regime Great Again.” They are not merely concerned with the glory of the Federal government.
What Trump’s supporters desperately want is to Make the American Herd Great Again. And by “Great,” they mean big, imposing, mighty, and fearsome.
In a time of sparse grazing (that is, a deep economic recession), they are irrationally alarmed at perceived economic inroads being made by the Mexican and Chinese Herds.
And in a time of military and diplomatic humiliation (see above), they are irrationally terrified that the Russian, Chinese, and Muslim Herds may someday supplant or even overrun them.
They want their Herd’s military stampede to be irresistible and earthshakingly awesome again, and its huddle (immigration and trade barriers, the national security state, etc.) to be impenetrable and intimidatingly forbidding. And they are looking to Trump to restore these herd characteristics as the new strongman shepherd.
This is why Trump’s vaunted masculinity is so important. His fans want their shepherd to have a firm hand, like a stern but protecting father.
As Bourne explained:
“There is, of course, in the feeling towards the State a large element of pure filial mysticism. The sense of insecurity, the desire for protection, sends one’s desire back to the father and mother, with whom is associated the earliest feelings of protection. It is not for nothing that one’s State is still thought of as Father or Motherland, that one’s relation towards it is conceived in terms of family affection.”
And this is especially true in times of war such as ours. Bourne added that the wartime State’s…
“… chief value is the opportunity it gives for this regression to infantile attitudes. In your reaction to an imagined attack on your country or an insult to its government, you draw closer to the herd for protection, you conform in word and deed, and you act together. And you fix your adoring gaze upon the State, with a truly filial look, as upon the Father of the flock, the quasi-personal symbol of the strength of the herd, and the leader and determinant of your definite action and ideas.”
But in order for this filial piety toward the Herd to really take hold, there usually needs to be a figurehead with a face, a name, and a personality to function as a devotional focal point: a father-figure embodiment of the Herd itself. This was the function of Big Brother in George Orwell’s Nineteen Eighty-Four. And this is the function of Trump in his supporters’ dreams of an American Herd made great again.
If America’s spooked-herd mindset continues to intensify, it could even turn the populist demagogue Trump into Nationalist America’s answer to Nationalist Italy’s Benito Mussolini: our “Il Douche” to their “Il Duce.”
*****
Conservatives need to snap out of their fight-or-flight response, take a moment to step out of the fevered haze of election season, and realize that there is no need or good reason to seek provision and protection in a Herd. (Class warrior leftists are also guilty of this in their own way.)
The shepherds they bleat for don’t tend to their flocks for the sake of the protection and provision of the sheep, but for the sake of their own wool and mutton. And such regime herdsmen are the ones who set herds against each other in order to divide and rule.
And protection and provision cannot be sustainably achieved through the bestial means of swarming and stampeding over outsiders. The “biological competition” (as Ludwig von Mises called it) of tribalism and warfare (both military and economic) is a zero-sum game. And it ultimately only endangers and impoverishes all by breaking down the positive-sum division of labor (social competition and cooperation), which is the rational and characteristically human means of attaining protection and provision.
As Mises taught, civilization is based on the division of labor, which in turn depends on respect for individual property rights (including self-ownership): in a word, justice.
The more that justice reigns, the more intensified and productive will be the division of labor, and the more the populace will be civilized: i.e., economically integrated, prosperous, and peaceful.
Justice (liberty and property) is what makes a civilization great. And civilization is what makes a populace rich and safe. In short, being good is what makes a people truly great.
Being good means peaceful and voluntary exchange, both commercial and cultural, to the enrichment of all, both material and spiritual.
Being good means not making enemies throughout the world by bombing, starving, and subjugating potential fellow members of the ecumenical market society and excusing it as “foreign policy,” “global strategy,” and “collateral damage.”
Being good means not pretending to have a partial claim over every single piece of private or “public” property under your government’s illegitimate jurisdiction, such that you can exclude others from it based on them being born under a different illegitimate jurisdiction.
And as the left needs to realize, being good also means not raiding the coffers of other socio-economic “classes” simply because they have more than you, and excusing it as “addressing wealth inequality.”
In other words, being good means acting like decent human beings, and not like a ravenous, paranoid, amoral Herd.
America the Herd is ever at odds with America the Civilization. It is America the Herd that is keeping America the Civilization from feeling and being prosperous and safe. For too long, we have let our rulers ride us roughshod, using us to trample the economy and global tranquility with its economic and military interventions.
*****
Apocalyptic Islamophobes like to speak of a “Clash of Civilizations,” but that is a contradiction in terms. Civilization is a concept of natural, unforced harmony. It is Herds that clash, not Civilizations. Civilizational commonalities may determine who is considered in the fold. But it is the Herd dynamic that hurls the throngs against each other.
And such clashes damage civilization in two senses. Civilization is degraded domestically, as the heterogenous dance of individuals yields the stage to the homogenous march of the horde.
And civilization between the two peoples is shattered as well.
There are many nested levels of civilization. Within the American civilization, there are distinctive sub-civilizations. The Midwest, the Northeast, the South, etc, each have their own recognizable subcultures and trading networks, even though they are also to some extent integrated with the broader American culture and trading network.
All these civilizations are, in turn, integrated with a broader Western civilization. And Western civilization has certain cultural affinities and (especially) economic relationships with virtually all the rest of the world as well.
So, no matter how distinctive two sets of people are, military and economic warfare between them breaks the bonds of civilization that culturally and materially enrich them both.
*****
Next time someone accuses you of “hating America” for denouncing beastly policies and the tribalism that endorses and enables such savagery, tell them, “I love America the Civilization, which is why I despise America the Herd. For you, it seems to be the other way around.”
Make America good again, and the kinds of greatness actually worth having will naturally follow.
- Bond Market Breaking Bad – Credit Downgrades Highest Since 2009
Despite The Fed's best efforts to crush the business cycle, the crucial credit-cycle has reared its ugly head as releveraging firms (gotta fund those buybacks) and deflationary pressures (liabilities fixed, assets tumble) have led to a surging market cost of capital.
As WSJ reports, softening U.S. corporate fundamentals have been largely overlooked but the markets for riskier debt have become snarled with rising downgrades and an increase in U.S. corporate defaults indicate “some cracks on the surface” of the domestic-growth outlook. In fact, in the latest quarter, the ratio of upgrades-to-downgrades is its weakest since the peak of the financial crisis in 2009.
Falling profits and increased borrowing at U.S. companies are rattling debt markets, a sign the six-year-long economic recovery could be under threat.
Credit-rating firms are downgrading more U.S. companies than at any other time since the financial crisis, and measures of debt relative to cash flow are rising.
Standard & Poor’s Ratings Services downgraded U.S. companies 297 times in the first nine months of the year, the most downgrades since 2009, compared with just 172 upgrades.
Meanwhile, the trailing 12-month default rate on lower-rated U.S. corporate bonds was 2.5% in September, up from 1.4% in July of last year, according to S&P.
Analysts expect profits at large companies to decline for a second straight quarter for the first time since 2009.
U.S. companies have increased borrowing to levels exceeding those just before the financial crisis, as firms pursue big acquisitions and seek to boost stock prices by buying back shares. According to one metric, the ratio of debt to earnings before interest, taxes, depreciation and amortization for companies that carry investment-grade ratings, meaning triple-B-minus or above, was 2.29 times in the second quarter. That’s higher than the 1.91 times in June 2007, just before the crisis, according to figures from Morgan Stanley.
“We’re seeing more widespread weakness across more industry sectors in the U.S.,” Ms. Vazza said. “It’s become broader than just the commodity story.”
“The metrics that you measure health and credit by have peaked a while ago,” said Sivan Mahadevan, head of credit strategy at Morgan Stanley. “They are beginning to deteriorate.”
* * *
You Are Here…
- JPMorgan Misses Across The Board On Disappointing Earnings, Outlook; Stealthy Deleveraging Continues
Maybe we now know why JPM decided to release results after market close instead of, as it always does, before the open: simply said, the results were lousy top to bottom, the company resorted to its old income-generating “gimmicks”, it charged off far less in risk loans than many expected it would, and its outlook while hardly as bad as it was a quarter ago, was once again dour.
First, the summary results, in which JPM saw $23.5 billion in non-GAAP net revenues, because yes, JPM has a pre-GAAP “reported revenue” item which was even lower at $22.8 billion…
… missing consensus by $500 million, down $1 billion or 6.4% from a year ago.
While the Net Income at first sight seemed to be a beat, printing at $1.68, this was entirely due to addbacks and tax benefits, which amounts to a 31 cent boost to the bottom line, while for the first time, JPM decided to admit that reserve releases are nothing but a gimmick, and broke out the contribution to EPS, which added another $0.05 to the bottom line.
There were two surprises here: first, JPM’s legal headaches continue, and the firm spent another $1.3 billion on legal fees during the quarter – one assumes to put the finishing touches on the currency rigging settlement. Also, as noted above, instead of taking a credit charge, i.e., increasing reserve releases, JPM resorted to this age-old gimmick, and boosted its book “profit” by $450 million thanks to loan loss reserve releases, the most yet in 2015; ironically this comes as a time when JPM competitors such as Jefferies are taking huge charge offs on existing debt. It appears JPM is merely doing what Jefferies did for quarters, and is hoping the market rebounds enough for it to not have to mark its trading book to market.
While the release of reserves helped JPM in this quarter, unless the economy picks up substantially next quarter, JPM’s EPS will be hammered not only from the top line, but also from the long-overdue rebuilding of its reserves which will have to come sooner or later.
Completing the big picture, was something rather troubling we first noticed last quarter: JPM’s aggressive push to deleverage its balance sheet, by unwinding billions in deposits. Indeed, as the bank admits, it has now shrunk its balance sheet by a whopping $156 billion in 2015, driven by a massive reduction in “non-operating deposits” of over $150 billion. Perhaps the US does not need NIRP: it appears banks like JPM are simply saying not to deposits.
Then stepping away from the bank, and looking just at JPM’s most important division, its Investment Bank, there were no major surprises there: Fixed Income Revenue crashed by $854 million Y/Y to $2.933 billion, which however was in line with sellside expectations. The silver lining: equity markets revenue of $1.4 billion posted a modest improvement of $173 million from Q3 2014.
This is how JPM explained it:
- Fixed Income Markets of $2.9B, down 11% YoY, excluding business simplification
- Equity Markets of $1.4B, up 9% YoY, driven by strong performance across derivatives and cash
The punchline:
- Firm loans-to-deposits ratio of 64%, up 8% since year-end
This was up to 61% last quarter, and is indicatively of the end of QE as the fed no longer pumps the company full of deposits without a matching loan increase.
Perhaps the most interesting thing about this slide was JPM’s admission at the very end that it had suffered $232 million in credit costs “reflecting higher reserves driven by Oil & Gas.” Considering this was a decline from the $299MM cost from a year ago, one wonders just how (in)sufficient this will be if and when the oil rebound once again fizzles.
Curiously, despite the most recent tumble in yields, JPM was happy to reported that after NIM rose by 2 bps last quarter, in Q3, “Firm NIM is up 7bps QoQ largely driven by positive mix impact of lower cash balances and higher loan balances.”
Finally, the outlook: while hardly as dour as last quarter when as a reminder JPM said “for 3Q15, expect business simplification to generate YoY negative variance in Markets revenue of 9%, with an associated reduction in expense”, this time the revenue guidance cut is only 2%. We expect this number to prove insufficient if the current market volatility continues.
JPM also said to “Expect 4Q15 YoY core loan growth to continue at 15%+/-.” So a 30% swing from top to bottom.
Here is the full outlook for what was a quarter JPM would be happy to forget
- Is This 2000, 2007 Or 2011?
Submitted by Lance Roberts via STA Wealth Management,
In last week's update, I discussed the short-term oversold condition that existed at that time. To wit:
"As you can see, the markets did retest the late August lows, and when combined with the very oversold conditions, led to a frantic "short covering" rally back to previous resistance. It is worth noting that the recent market action is very similar to that of the August decline and initial rebound as well.
Of course, the question that must be answered is whether we have seen the end of the current correction or is this just another "reflexive rally" that will fail?"
The chart below is updated through yesterday's close.
Currently, the bulls have clearly been in charge of the market. The question is for "how long?"
While last week's FOMC minutes gave the "bulls" some confidence that the Federal Reserve is not removing its accommodative policy, it was the massive amount of short-interest (people betting on markets to fall) that provided the fuel.
The chart above, from ZeroHedge, shows the massive jump in short-interest that has to be covered as stock prices rise. When players are "short the market," bullish reversals in prices force traders to close out their positions by "buying" into the market. This fuels additional buying, which pushes prices higher, which forces more players to close out their short positions. This cycle continues until the "fuel" is exhausted. This is why market rebounds tend to be extremely sharp and fast, but also fade just as quickly.
For a visualization think about the "Whoosh Bottle" where an air/gas mixture is fairly inert until ignited by a catalyst. (Vine by @scienceporn)
That mixture of oversold market conditions, combined with a sharp rise in "short interest" in the market, was the perfect accelerant waiting on a match. That match was the Fed failing to hike rates and a lack of China in the headlines.
However, there is a big difference between a fundamentally based "bull market" advance and a short-covering rally in a "bear market" cycle. While it is too early to say that we are indeed in a bear market, there are many indications such is indeed the case as I discussed yesterday in "4 Warnings."
- Profit margins have had a 60bp decline.
- Margin debt has fallen below its moving average.
- Valuations have started to contract.
- Economic measures have fallen sharply.
Add to those fundamental arguments the technical deterioration of momentum and relative strength in the market and a more worrisome picture emerges.
Importantly, despite many of the mainstream calls for a continued bull market, it is worth noting that historically the negative alignment of both the fundamental warnings and technical indicators have only occurred at the onset of more protracted bear market declines.
Could this time be different? It's possible, particularly if the Federal Reserve once again intervenes with more liquidity driven monetary policy. However, such action by the Federal Reserve seems unlikely as they are focused on "tightening" monetary policy by hiking interest rates, rather than "loosening" it with additional liquidity. Of course, another sharp decline in the market that erodes consumer confidence will likely quickly change their stance.
Is This 2000, 2007 or 2011?
One of the primary arguments by the more "bullish" media is that the current setup is much like that of 2011 following the "debt ceiling" debate and global economic slowdown caused by the Tsunami in Japan.
While there are certainly some similarities, such as the weakness being spread from China and a market selloff, there are some marked differences.
From a fundamental standpoint the Federal Reserve, along with the ECB, were actively engaged in pushing support for the financial markets globally. This is not the case today, as stated above.
Furthermore, the economy was "saved" in Q3 and Q4 of 2011 by the warmest winter in 65 years that allowed for continued manufacturing and production during a period when inclement weather is generally a concern. This also coincided with the "reboot" in Japan which allowed for "pent up" demand to be filled. As we once again face an extremely cold winter period, as we saw in the last two, the outcome fundamentally is far different.
From a technical backdrop, there is a striking difference as well. In 2011, asset prices plunged on fears of a "debt default" coupled with the lack of liquidity following the end of QE 2. However, price momentum and the relative strength of the underlying market internals remained bullishly biased.
Currently, the technical deterioration is more aligned with the previous bear market cycle as "sell signals" have been registered for only the third time since the turn of the century. With only one "sell signal" not registered, the moving average crossover, there is a minor "hope" for the bulls at this juncture. However, given the steepness of the decent it is likely that signal will be registered in the weeks ahead if the "bulls" are unable to gain solid footing and push markets to new highs fairly quickly.
No matter how you want to view the market, it is hard to make the case that this is simply just a correction within an ongoing bull market cycle. As I quoted in yesterday's post (Edward Harrison):
"We are now in the seventh year of a cyclical recovery and bull market. Shares have tripled in that time frame. I would say this means we are much closer to the end of the business cycle than the beginning.
To me, the pre-conditions for this profits recession speak to downside risk, both for risk assets and for the real economy. None of the data speaks to recession in the real economy right now. We are seeing a slowing of job growth and likely of trend economic growth as well. But with a profits recession hitting, the potential for further downside is high."
That view, combined with the fundamental and technical backdrop that is more aligned with historical bear market cycles, suggests that excessive risk taking currently is ill-advised. If the backdrop changes to a conducive environment, then that view will change accordingly. For now, it remains prudent to use rallies to reduce risk. Remember, it is always easier to get back into the market once the path higher is clear. Conversely, it is harder, and a bit pointless, to keep using rallies simply to make up previous losses. Getting "back to even" is simply not a viable long-term investment strategy.
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