The Status Quo won--no surprise there, as there was no other choice offered. The Imperial Presidency won, too, of course; anyone anywhere can still be assassinated by order of the Imperial President, regardless of their citizenship. Anyone can be labeled "an enemy of the State" and either liquidated (high fives all around!) or crushed by the Espionage Act (transparency is a crime), Patriot Act (dissent is also criminal), the NDAA, or maybe another Executive Order. The neofeudal Aristocracy also won, as vested interests were free to buy "free speech" in unlimited quantities. That means the bag of tricks to "save us from recession" is finally empty. The next recession will sink its teeth into the Savior State and all the protected fiefdoms and cartels with a vengeance built up by four years of "extend and pretend." The failure of "extend and pretend" and the Status Quo that sold it as the "fix" opens up the possibility that crisis will lead to real reform, the kind that requires a Constitutional Convention.
Retirement-Off! The Dow just crossed back under the magical 13,000 level for the first time in two months...Having crossed this rubicon for the first time on Februray 21st, we can reflect on eight months well spent... and the sound of millions of retirees sifting through the 'Help Wanted' pages is deafening - as those 'young-people' that voted for change will continue to participate less in the workforce.
This is what complete social collapse looks like. First, the local Neo Nazi party has soared in the polls and is now the third most popular Greek party. Then, in lieu of other sources of capital, a local brothel became the head sponsor of a minor-league soccer club from Larissa. Now, the same brothel which appears to have seen a substantial return on its advertising spend, has decided to branch out. Straight into a local school. That's right: a whorehouse is advertising its "services" to children in an elementary school. In exchange for what? Money to purchase a Xerox machine and a library.
In the seven weeks since Bernanke unleashed monetary policy hell on the world, much has been made of the 'housing recovery' and how his policy will help sustain this boomlet. Unfortunately, facts being those annoying things that they are, this is absolutely not the case. Aside from a one week knee-jerk ramp in refinancings - no doubt driven by every mortgage broker in the country dialing-for-dollars on the basis that Ben's-got-your-back - mortgage applications have fallen for five weeks in a row... We presume this merely means we need another moar unlimited QE - which given the fiscal cliff fiasco, is as likely as not. In fact, the next round of housing weakness, which is due imminently now that Obama has been reelected, will serve as the alibi the Fed needs to continue the unsterilized portion of Operation Twist 2 set to expire at the end of the year, and which as we explained, will mean that starting January 1, the Fed will monetize $85 billion/month in TSYs and MBS instead of just $40 billion in MBS.
Do not expect any changes to the trends of polarization and party non-conformists is the message from JPMorgan's CIO Michael Cembalest. As he explains moderates like Blue Dog Democrats and Rockefeller Republicans are now artifacts in the Natural History Museum, having given way to their more ideological offspring (through retirement or after having been beaten in primaries). If anything, Cembalest believes the House may become even more partisan after apparent losses by moderates in both parties. After a better than expected night for Democrats given Senate results, the fiscal cliff looms; With the status quo maintained, a divided government goes back to work to solve the Mutually Assured Fiscal Destruction problem. However, electoral results suggest the country is in no mood to address entitlement issues right now, will defer them to another day, and continue to shift towards a high-Federal debt economic model that bears some resemblance to Europe and Japan. In the 1950’s, the solution to 80% Federal debt was not taxation, austerity or inflation, but growth.
Investors should prepare for rising prices and more expansionary monetary policy now that President Barack Obama has won re-election, investor Jim Rogers told CNBC on news of the election. The co-founder with George Soros of the Quantum Fund said he expected Obama’s policies to drive up commodities and drive down the U.S. dollar. As the Federal Reserve moves to ‘stimulate’ a stalled economy through debt purchases, Rogers says markets should expect the status quo to remain the same. “If Obama wins, it’s going to be more inflation, more money printing, more debt, more spending.” Rogers told CNBC, saying he expected to sell U.S. government debt and buy precious metals, such as silver and gold. “It’s not going to be good for you me or anybody else.”
This morning no one is marching in the streets, no coup is underway and the election process functioned. For that much at least; we give thanks. We will have twenty-fours hours of afterglow and self-congratulation and then we will return to a Democratic President with a Democratic Senate that will confront a Republican Congress and America’s fiscal cliff. The popular vote provides no mandate and the United States remains a deeply divided country. Just as our election on November 6 provided an end to a very long road so will the empty till of Athens and the severely declining revenues of Spain. Decisions will now have to be made. In both Greece and Spain it is a high stakes game of Risk where the “streets are alive” and not with “the sound of music.”
It was shaping up like the perfect overnight ramp following yesterday's Goldilocks election result... and then Mario Draghi opened his mouth.
- DRAGHI SAYS DEBT CRISIS STARTING TO HURT GERMAN ECONOMY
- DRAGHI SAYS GERMAN RATES LOWER THAN THEY WOULD BE OTHERWISE
And so finally, after months and months of explaining the fundamental dichotomy in Europe (see here), it is finally becoming transparent. And it is as follow: Germany, which is the economic dynamo of Europe, needs a weaker EURUSD to keep its export economy running. Period, end of Story. The problem is that the lower the EURUSD, the greater the implied and perceived EUR redenomination risk, which in turns send the periphery reeling, and will force first Spain, and then everyone else to eventually demand (not request) a bailout.
- Obama Wins Re-election With Romney Defeated in Key States (Bloomberg, Reuters)
- Romney's last, greatest 'turnaround' falls short (Reuters)
- Control of Congress set to remain split (FT)
- Republicans to Hold Most Governor Offices Since 2000 (Bloomberg)
- Economic Unease Looms After Win (WSJ)
- Storm-lashed New York, New Jersey scramble as weather threatens (Reuters)
- Democrats Assured of Keeping U.S. Senate Majority (Bloomberg)
- Greece to vote on austerity, protests intensify (Reuters)
- France offers businesses €20bn tax break (FT) ... Wait, what?
- Putin Fires Defense Chief in Rare Move (WSJ)
- China premier Wen calls for deeper cooperation on disasters (China Daily)
- China wrestles over democratic reform (FT)
- Top-Performing Won Threatens to Hurt Korea Export Rebound (Bloomberg)
Congratulations on the four more years, Mr. President. To celebrate, Goldman starts by cutting the Q4 GDP forecast from 1.9% to 1.5% (and let's not forget that the same Goldman is predicting a 15% drop in the S&P in the next two months to get the Fiscal Cliff deadlock to break).
Obama has been reelected, the Senate remains in the hands of the democrats, while Congress is controlled by the GOP. Most importantly, the printer is firmly in the hands of Ben Bernanke. In other words, nothing has changed, as was largely expected all along. The worst case scenario - a protracted litigation, challenging the results of the election - has been avoided after Mitt Romney contested shortly before midnight, and as a result the immediate downward gap in risk following the election has been largely recouped overnight. More importantly, '4 more years' of the same monetary policy and no end to currency dilution have resulted in a nearly $50 jump in gold overnight with the metal in the $1720s this morning, because while the Fiscal Cliff remains hopelessly unresolved, and the baseline scenario that the market will need to tumble to shock politicians into waking up, remains (as does Goldman's 1250 year end S&P price target), the reality is that no matter what happens, Bernanke and crew will print and monetize the coming deluge of debt (which would also have been the case if Romney had won). And with total debt set to rise to $22+ trillion over the next 4 years, a deluge it will be. Most importantly, with Obama reelected, Europe is now "off the hook" and can finally rock the boat, which means Greece can take its rightful place at the front of the domino chain. Remember: the latest Greek austerity vote is today and voting (i.e. debating) has begun, and with vote results expected later today. It also means that the military festivities in the middle east, where the US now has 2 aircraft carriers and 2 marine assault groups, can resume.
Tonight it's all Obama-corns and Biden-faeries but the market is already 'adjusting' to the new old new normal regime. Unfortunately in 'Obama II - This Time Its Different' the odds of going over the Fiscal Cliff just got real. As we noted here (and in more detail here and here), there is now a 55% chance we go over the cliff (given the status quo of no compromise) and the market is a long way from pricing that kind of GDP shock...