Few laws cause as much high blood pressure as the Affordable Care Act (ACA). Supporters of the law consider it the signature legislation of the Obama administration. Yet, in 2011 the House of Representatives passed the “Repealing the Job-Killing Health Care Law,” one of more than 40 attempts to scuttle the legislation. Public opinion polls are ambiguous: most Americans are against the law as a whole and yet most support many of its provisions. BofAML tries to slice through the partisan debate and show what serious research says about how the ACA will impact the labor market.
There is a very good chance that the crisis that began in 2008 is actually not over by any stretch – it is merely moving from one place to the next. After all, the developments discussed below are a direct result of the reaction of the world's monetary authorities to the initial crisis. China's credit bubble and ZIRP in the US and Europe are all children of the crisis and have evidently sown the seeds for the next crisis. As we always stress, we expect that the next major crisis will eventually lead to a crisis of confidence in said monetary authorities. At some point, faith in central banks is bound to crumble and then we will really experience 'interesting times'.
Tom Perkins is back. Still apologetic for his Kristallnacht analogy, the 82-year-old 1-percenter's-1-percenter, still wearing the $350,000 Richard Mille watch discussed his views on the failure of social, fiscal, and monetary policy at a talk entitled "The War On The 1%" ironically in San Francisco - and increasingly divided city. Perkins explained that the top 1% is carrying the government - "Government is a giant beast that has to be fed, and it's fed with taxes... and taxes will go up and up and up." Simply put, he notes on the entitlement society and implict buying of votes, "we got ourselves into this mess," and his biggest fear is higher taxes until there is no 1% - "It's an economic extinction, not a physical one." Perkins proposes a "$1, 1 vote" future noting that 50% of registered voters pay no taxes.
On October 15, well into the fourth quarter, David Tepper appeared on CNBC for his semi-annual stock pumpfest, most memorable for his suggestion that a 20x P/E multiple on the S&P was perfectly acceptable. Which would suggest Tepper was very bullish on risk. Which would suggest buying more stocks, not selling. Yet selling is precisely what he did between September 30 and December 31 for the vast majority of his top holdings according to his just released 13F. So what did he sell or liquidate?
The Ivanpah Solar Electric Generating System officially came online on February 13, becoming the world’s largest source of solar power. With a capacity of 392 megawatts, the solar system will be able to generate enough power for 140,000 homes in California. Ivanpah uses concentrated solar power (CSP), which uses hundreds of thousands of mirrors to reflect the sun towards a tower. This heats a boiler in the tower, which creates steam to drive turbines and make electricity. Ivanpah can be seen as a success story and a cautionary tale, highlighting the inevitable trade-offs between the need for cleaner power and the loss of fragile, open land. The speed at which solar expands will depend on incentives from Congress, many of which are set to expire in 2016.
Former Congressman Ron Paul has launched a petition to attempt to garner clemency for NSA whistleblower Edward Snowden. The "Demand Clemency for Edward Snowden" petition includes the clip below, Paul calls on supporters to sign the petition in an attempt to bring Snowden home to the US safely before his temporary visa in Russia expires in July. On the heels of his son Rand Paul's lawsuit against the Obama nd the NSA seeking to stop its collection of phone metadata, Ron Paul states "Edward Snowden shocked the world when he exposed the NSA’s illegal and abusive spying program. Instead of applauding him for his bravery and patriotism, the U.S. government labels Snowden a traitor." By signing this petition, Paul notes on his Channel's website, "you are telling the US government that Mr. Snowden deserves the right to come home without the fear of persecution or imprisonment."
The market correction that begin in January appears to be subsiding, at least for the moment, as Yellen's recent testimony gave markets the promise of the continuation of Bernanke's legacy. With the markets back into rally mode, for the moment, this week's "Things To Ponder" focuses on some of the bigger issues concerning the effectiveness of QE, investing and "77 reasons you suck at managing money."
Silver gained a stunning 7% this week - its biggest week in 6-months - and gold up over 4% as precious metals handily outperformed US equities (despite the latter being bathed in the glory of a media-gloating low-volume melt-up). Nasdaq is now up 1.7% on the year and broke to new highs not seen since Dec 2000. There was a clear effort to get the more critical S&P 500 to unch in 2014 but it failed - despite slamming VIX to 13.5% (and STVIX to record lows). High-beta Nasdaq and Russell outperformed on the week and Trannies lagged. The USD drifted lower from Wednesday with GBP (+2%, best week in 8mo.) and EUR strength the biggest drivers but notably equities disconnected from JPY carry after 1030ET. Treasury yields slid higher today and ended the week 2bp (30Y) to 6bps (5Y and 10Y) on the week. Healthcare and Utilities are the massive outperfomers in stocks in 2014 - that must be good right?
When it comes to complex systems and unintended consequences, the key phrase is "be careful what you wish for." A lot of people are remarkably certain that their understanding of how systems will respond in the future is correct. Alan Greenspan was certain there was no housing bubble in 2007, for example (or he did a great job acting certain). Some are certain the U.S. stock market is going to crash this year, while others are equally certain that stocks will continue lofting higher on central bank tailwinds. Being wrong about the way systems responded in the past doesn't seem to deter people from being certain about the future. Complex systems don't act in the linear way our minds tend to work.
CBOE's short-term VIX product (which tracks the implied volatility in stock options for a 9-day maturity) dropped to its lowest since inception this morning at 10.16%. The spread to the more 'usual' maturity VIX index is over 3.3 vols which isthe most inverted on record and thus the most short-term complacent equity investors have been since the lows in 2009. The exuberance of the last few days is equally and oppositely matched by the sheer lack of enthusiasm in volumes. S&P futures volume is 33% below recent averages today and as the chart below shows, it is clear where the volume in this "market" remains.
Chinese capital markets are quietly turmoiling as debt issues are delayed and demand for "Trust" products - the shadow-banking-system's wealth management 'investments' - is tumbling. As Nikkei reports, since January, 9 companies have postponed or canceled issuance plans (around $1 billion) and is most pronounced in privately-owned companies (who lack an implicit government guarantee). This, of course, is exactly what the PBOC wanted (to instill some fear into these high-yield investors - demand - and thus slow the supply of credit to the riskiest over-capacity compenies) but as non-performing loans in China surge to post-crisis highs, fear remains prescient that they will be unable to "contain" the problem once real defaults begin (as opposed to 'delays of payment' that we have seen so far).
Now that absolutely everyone is laser-focused more on the participation print, recently at 35 year lows, than the actual unemployment number which even the Fed has implied is meaningless in the current context, one thing to note is that while the overall number is a blended average across the US, it certainly differs on a state by state basis. 4In order to get a sense of which states are the winners and losers in the payroll to participation ratio, we go to Gallup, which conveniently has broken down this number on a far more granular basis. Gallup finds that Washington, D.C., had the highest Payroll to Population (P2P) rate in the country in 2013, at 55.7%. A cluster of states in the Northern Great Plains and Rocky Mountain regions -- North Dakota, Nebraska, Minnesota, Wyoming, Iowa, Colorado, and South Dakota -- all made the top 10. West Virginia (36.1%) had the lowest P2P rate of all the states.
Silver's 4.4% rise today - back above $21 for the first time in 3 months - is the largest single-day surge in 5 months. While gold has been making the headlines, silver has risen 11.9% with no down days in the last 11. This is the best 2-week run in 6 months as the Gold-to-Silver ratio has collapsed from over 65x to 61x today.
Bill Gates’ Texas energy company has filed for bankruptcy protection as the depressed power market results in untenable financial losses... "The current depressed economic environment of the electric power industry – particularly with respect to coal-fired plants – and the debtors' liquidity constraints have resulted in continuing losses that, simply put, have left the debtors without alternatives." But what about the recovery?!