Do you think the Fourth Amendment, which prohibits warrants without probable cause and limits them to specific places, times, and people, is important today? Prof. James Otteson suggests that this protection is incredibly important. Without this limitation on warrants, officials could look for wrongdoing at will. Where there are witch hunts, witches will be found; where there are inquisitions, blasphemers will be found; and officials with unlimited authority to seek out wrong doing are going to find it. People who choose to pursue happiness in unconventional ways or ways that differ from the majority should be free to do those things.
Deflation - A derangement of money or credit, a symptom of which is falling prices. Not to be confused with a benign, i.e., downward shift in the composite supply curve, a symptom of which is also falling prices. In a genuine deflation, banks stop lending. Prices tumble because overextended businesses and consumers confront the necessity of selling assets in order to raise cash. When prices fall because efficient producers are competing to deliver lower-priced goods and services to the marketplace, that is called “progress.” In 2013, central bankers the world over define deflation as a fall in prices, no matter what the cause. Nowadays, to forestall what is popularly called deflation, the world’s monetary authorities are seemingly prepared to pull out every radical policy stop. Where it all ends is one of the great questions of contemporary finance.
While Chinese stocks are underperforming their Japanese neighbors', the decision of which Asian language to learn (in order to potentially better your future) is clear. As Hurun Research notes, half of the richest women in the world (with assets in excess of $1 billion) are from China - including 3 from the Top 5 and 6 of the Top 10. Asia was home to the highest number of billionaires this year with most of them operating in real estate sector. The total wealth of the 1453 billionaires amounted to a staggering US$5.5 trillion, the equivalent of China’s GDP and the so-called 'Ten-Zero-Club' - individuals with over USD10bn - grew by 25 to 108 people. The USA still ranks #1 (exceptionally) for the country with the most billionaires - at 409!
Will the history books record these past couple of weeks as the point when the tide finally turned against our interventionist foreign policy? The American people have spoken out against war. Many more are now asking what we have been asking for quite some time: why is it always our business when there is civil strife somewhere overseas? Why do we always have to be the ones to solve the world's problems?
Gold prices just legged down $15 as Japan opened, breaking bad below $1,300 for the first time in 6 weeks. No news (obviously). It seems the 'early' gold price rally when Summers stepped away was too much to bear... Equities and bonds rally because moar of the same dovish idiocy will remain at the Fed... and gold falls out of bed? It would appear Mikael has been a busy boy once again (in early we note by his Bloomberg status)
The Euro area is no longer the centre of all the stress... EM countries are! Despite their significant correction in recent months, SocGen notes that valuations remain far more extreme (or cheap) and outflows are dominating (despite a 24% discount on a price-to-book basis across EM stocks, they reain rich historically). Significant structural issues like balance of payments, deficit or inflation may lead to further turmoil in emerging markets, potentially destabilising the underlying economies. Simply put, SocGen warns, valuations have further to fall; do not catch the falling knife (yet).
The bodies of the casualties from yesterday's latest mass shooting incident have not been buried yet, but already the president, fresh from his embarrassing foreign relations defeat with Russia and not to mention the ongoing NSA snafu, is back in 'distract em with a campaign-cum-crusade mode' after calling, once again, for Congress to pass gun control legislation this time in an interview with Noticias Telemundo. One can only assume the president was himself too distracted by all his recent scandals and/or was just spying too hard on the American people to recall that it was only in April that the Democratically-controlled Senate killed an amendment to a Democratic gun control bill, which was the first and biggest slap in the face of the freshly re-elected president so far in 2013 (little did we know it was only downhill from there), and made a mockery of Obama's crusade to enact gun control.
On the back of our detailed discussion of the inner workings of the German election (here and here), it appears that we are no nearer understanding the two major political narratives that appear dominant currently. As Reuters reports, Angela Merkel's center-right coalition and Germany's combined opposition are running neck and neck, a poll showed on Tuesday, five days before the national election. Crucially, if the figures are repeated in Sunday's election, Merkel will lack the support to renew her coalition with the FDP and Germany will most likely end up with a 'grand coalition' of conservatives and SPD, like the one Merkel led in 2005-2009.
Saudi Arabia is pumping out more crude that at any time since the 1970s and in Kuwait and The UAE, oil production levels have hit record highs. As The FT reports, the US might be 'drowning' in oil, but the world is still dependent on Saudi Arabia for the marginal barrel. This is crucial since, "whatever is happening in the US, the Gulf states remain critical to the global oil trade,” says Credit Suisse's Jan Stuart, "the fact they are producing so much shows that the global oil balance is far more stretched than consensus would have you believe." The trigger for the jump in Gulf production has been huge disruption to supplies from Libya; and with the three large Gulf producers meeting 17.1% of global demand (it has never topped 18%), the dependence on the Gulf appears to be growing. The concern remains, despite apparent nonchalance, that consuming nations like the US, China, and India will be stifled should production disruptions last.
A week ago when we presented the missing link in the "all cash" housing recovery, namely laundered, embezzled or simply stolen off-shore sourced cash parked in the US real estate market which takes advantage of the NAR's generous anti-money laundering provision exemption, we asked what we thought would be a rhetorical question: "just how far will Preet Bharara take this, and comparable such future actions?" Turns out the answer is quite a bit farther, and higher. And not only that, but instead of just targeting residential real estate, the US attorney in Manhattan, is now focusing on commercial real estate as well. As CNN reported moments ago, the US government has seized an iconic midtown Manhattan skyscraper, one where none other than Ivan Boesky plotted his insider trading schemes in the 1980s, that prosecutors claim is secretly owned and controlled by the Iranian government. The skyscraper in question is 650 Fifth Avenue, also known as the Piaget building.
As we previously noted, it would appear - unlike the exuberance in the market - the 'taper downside risk' is very much in equity markets rather than bonds. Today's aggressive equity and credit hedging and bond stability perhaps signal more apprehension than a rallying volumeless equity market might suggest but if the following 2 charts are anything to go by, a shift to removing the punchbowl (no matter how biased to longer, lower, forward rate guidance - of course stymied by 2016 economic projection dilemmas) has seen bonds surge and stocks purge...
The chart below tells a story. Do you think the fiscal and monetary policies implemented by Bernanke and Obama since 2008 were designed to benefit you? If you believe in regression to the mean and a world based on reality, then you should be prepared for corporate profits to decline by 14% to 20% over the next four years. What do you think that will do to a stock market where the PE ratio is already at valuation levels of 1929, 2000, and 2007?
If there was one deal that epitomized the last credit bubble, aside from the Blackstone IPO of course, it was the ginormous, $45 billion 2007 LBO of TXU, now Energy Future Holdings. And while the tide for the New Abnormal credit bubble has yet to expose its megalevered monoliths swimming fully naked, as for now corporations have opted for graduated semi-MBOs in the form of ever larger stock buybacks (although as rates rise this too day of reckoning is coming), the time to pay the piper for the last credit-fuelled binge has arrived and inevitable bankruptcy of this landmark deal is now just days away. From the WSJ: "Energy Future Holdings Corp. has begun sounding out banks for financing to help it operate during expected bankruptcy proceedings, which could come as soon as November for the Texas power producer."
While stocks were a one-way street higher today, with the S&P pulling back to yesterday's cash opening levels; the rest of markets did not seem so excited about the prospects for tomorrow. The USD was down (no-Taper), Gold, silver, and oil were all down notably (Taper), Bonds flatlined with the long-end modestly lower in yield (Taper/no-Taper), and stocks rallied (on dismally low volume) in Taper-is-good-news mode. It was all pandas and kittens though as VIX was heavily bid relative to stocks as at least some 'investors' sought protection ahead of tomorrow's big day. This is the 12th up-day of the last 14 days for the S&P 500 - sure, why not?