Spoiler Alert: They’re mostly still in office (so much for building suspense).
On October 3, 2008, 338 elected officials (263 House reps, 74 Senators and 1 President) took it upon themselves to save America from certain financial doom by passing the Emergency Economic Stabilization Act of 2008, completely ignoring the will of the American people, opting instead to fulfill a Thomas Jefferson prophesy:
“The end of democracy and the defeat of the American Revolution will occur when government falls into the hands of lending institutions and moneyed incorporations.”
~ Thomas Jefferson
Back in July, when the news of the French foray into the "fairness doctrine" hit, and we learned of Hollande's plan to tax all those making over €1 million at a 75% tax rate, we said that "we are rotating our secular long thesis away from Belgian caterers and into tax offshoring advisors, now that nobody in the 1% will pay any taxes ever again." We should have also added that we are buying all the available long-dated call options in French real estate firms, with the imminent surge in luxury real estate dumping, once the French "1%" decide they want nothing to do with a regime that is hell bent on confiscating 75% of their annual cash flow at first, and slowly moving toward pocketing the balance of their assets (remember what we said in September 2011: that 30% global tax on all financial assets in a New Normal insolvent, and wealth redistributive world, is inevitable, and it is coming). Sure enough, the wholesale dump of luxury properties has now begun. AFP writes: "A flood of top-end properties are hitting the market as businessmen seek to leave France before stiff tax hikes hit, real estate agents and financial advisors say. "It's nearly a general panic. Some 400 to 500 residences worth more than one million euros ($1.3 million) have come onto the Paris market," said managers at Daniel Feau, a real-estate broker that specialises in high-end property." But that would mean that in the New Normal real estate is once again merely a credit-bubble dependent, flippable asset: not a long-term housing investment, but merely one in which the pursuit of the greater fool is all that matters (not news to anyone here, but certainly news to all those who actually believe that 'housing has bottomed').
Whether you believe China is an economic miracle - or a government-sponsored fraud; and can ignore the broken growth model or believe that the CCP can bailout the world; Michael Pettis, of China Financial Markets, provides a much-needed dose of reality for bulls and bears when it comes to the future of the global growth engine. After summing up (and laying-waste to) the three mainstays of China bulls' arguments: he asks the three toughest questions any China bull must be able to answer. Analogizing China's position perfectly he cites Mills: "Panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." Simply put, the bull argument cannot ignore the hidden bad debt.
With the S&P 500 once again testing multi-year highs, forward P/Es over 14 in a real-rate environment which suggests single-digit P/Es, abnormal micro-structure (mega-caps outperforming and high-beta fading in an up-tape), and a buy-the-f$$king-'dream' mentality soaking in everywhere, we take a close-up view of the earnings season reality that is about to come crashing down on multiple-expansion hopes. Following on from the five most ridiculous charts in US equity markets, these five 'facts' will be assuaged by every long-only manager as 'priced-in' - we suspect otherwise.
"Detroit is America's most violent city; its homicide rate is the highest in the country." Detroit Police department's "Enter At Your Own Risk" warning to citizens came at a rally yesterday as they fear under-staffing in the midst of what CBS reports as "the explosion in violent crime" leaves police in "deplorable, dangerous, and war-like conditions." While the union presses for more staff - or higher wages to compensate for the risk - we are sure Snake Plissken can be relied upon to rescue GM's CEO if he needs it.
Ueli Maurer, the Swiss defense minister, has been making coy statements about the European crisis getting ugly – as in really ugly, like needing armed troops to deal with it. This sounds more like Greece, where the rioting is regular and increasingly scary, than anything in Central Europe, but where the whole EU furball is headed does seem less than clear of late. The Swiss are famous for preparing for everything and having an absolutely huge army, relative to their population, to deal with any eventuality. It’s easy to dismiss the Swiss, since they are a tiny country whose military hasn’t actually fought anybody in a couple centuries. On the other hand, they managed to stay out of both of Europe’s catastrophic World Wars precisely though preparing for eventualities and maintaining a strong defensive capability. They’re clearly on to something.
Whether it is a fringe-blog pointing out the statistical un-possibility (here and here), or a previously well-respected 'elite' pointing out the suspiciousness (here), most of the general public (or their media-based oracles) prefer not to swallow the red pill of reality with regard Friday's data SNAFU. However, given the political (and economic) consequence of a single-number, Gallup has decided to weigh in on reality as they note "even though the Household survey tends to be very volatile, this decline seems to lack face-validity, particularly after the prior month's numbers" as they analyse why the household results should be discounted heavily. Critically, they, like us, suggest the 'unemployment rate' needs to be replaced as a measure of joblessness, suggesting a far simpler (and more transparent) measure - Payroll-to-Population - would avoid the 'adjustments' and 'biases' that are inherent in the BLS's bafflement. The Gallup measure suggests, as one would perceive using common-sense, that the real jobs situation was essentially unchanged last month.
Angela Merkel is finally coming to the one country where the local media will not tire of photoshopping her in various Nazi outfits. The result: at least 6,000 policemen (and more like 7,000 according to Spiegel) will be deployed to protect her on her 6 hour visit to Greece on Tuesday, the first since the crisis erupted in 2009, and which has seen Greek unemployment explode from manageable to 25% at last check. Another result: parties from across the spectrum have said they will protest her visit, and strikes will further shut down what is already a completely shuttered economy. "She does not come to support Greece, which her policies have brought to the brink. She comes to save the corrupt, disgraced and servile political system," said Alexis Tsipras, who leads the opposition Syriza alliance. "We will give her the welcome she deserves."..."We don't want her here," said Yannis Georgiou, 72, who has seen his pension cut by one third. "We will take to the streets against austerity and against the government. Maybe Merkel will hear something and see what we're going through." Finally, with virtually the entire police force tasked with defending Merkel from the residents of her Southeastern European colony, it means that virtually every other place of interest will be left unguarded. Hopefully, nobody in Greece has seen Die Hard with a Vengeance and has access to dump trucks. The one thing Greece has going for it: there is virtually no official gold left anywhere that can be stolen (most of it already has been transferred elsewhere), or otherwise any tourist armed with a camera and located in the vicinity of the National Bank of Greece could film a sequel to what many consider the best Die Hard of all.
It will, or should, come as no surprise that as a result of the Great Financial Crisis, just as in real life, so in D.C., the wealthiest politicians have gotten wealthier: in fact at least 72 politicos have doubled their wealth in the past 5 years. It will, or should, also come as no surprise, that as a result of the GFC, the average wealth of Republicans (which declined) and Democrats (which rose) has converged, confirming that at least when it comes to the economic disparity between America's two big parties, there is no longer any difference. At least these are the findings of a recent WaPo study looking at how America's lawmakers have benefited from the laws they themselves institute. In other words, while America's laws may be designed for its people, those who actually benefit from this country's fiscal (and of course monetary) policy is just one group: those who continue to transfer wealth from what little is left of the middle class and into their own, mostly offshore, bank accounts. From the WaPo: "You would find that, contrary to many popular perceptions, lawmakers don’t get rich by merely being in Congress. Rich people who go to Congress, though, keep getting richer while they’re there." We are fairly confident that there were no "popular perceptions" that anyone goes to Congress to get wealthy. Congress, and certainly the Senate, are merely vehicles to allow those with power and money to simply perpetuate a status quo that benefits the 1% and takes, what little is left, from everyone else. And sadly, this theft transcends political lines and ideological colors. In short: everyone is doing it, even as America continues to delude itself there is an option. There is none.
The Syrian-Turkish artillery exchanges are becoming a nearly daily tradition: first on Wednesday, when NATO member countries had to be woken up late at night at the request of Turkey to opine on whether Syria had breached Article 4 (leading to a lot fo harsh language by Hillary Clinton), then again on Friday, and now on Sunday, when Syria, (or at least various Al Qaeda factions inside of it, presumably not those endorsed by Turkey) is once again provoking Turkey by firing into the same location as on the previous two occasions, leading to the inevitable Turkish retaliation. All this of course is happening as Turkey deploys ever more military at its Syria border. One of these days, after the latest Syrian 'provocation', Turkey will just snap and invade, taking advantage of the Bill recently passed in Parliament which gives the country permission to invade Syria if it so chooses in retaliation, and of course of NATO's unconditional backstop. And just to add spice to the situation, an unidentified drone will quietly fall out of the skies just because.
To grasp what is really occurring here we must look at how authoritarian Middle Eastern regimes (or, indeed, authoritarian regimes in general) function. Authoritarian regimes must maintain a cloak of authority. Tyrants do not attempt to look or sound weak; they try to project an aura of invincibility and indefatigability. We saw this during the last Gulf War, where Iraq’s information minister Muhammad Saeed al-Sahhaf — nicknamed Baghdad Bob in the American media — shot off hundreds of absurd statements during the war about how Iraqi troops were crushing the Americans, quite in contrast to the facts on the ground and right up until American tanks were rolling through the streets of Baghdad. Baghdad Bob was not deluded. He was merely playing his role, and trying to project an aura of regime invincibility — providing propaganda for domestic consumption to keep the Iraqi population loyal to Saddam Hussein. It was a dog and pony show.
Sick of the official and very serious theater that passes for America'a presidential election? Then enjoy the following less than serious theater courtesy of the comic duo of Bill O'Reilly and Jon Stewart, whose "Rumble 2012" was the best 90 minute lampoon of America's hypnotic fascination with whose (skewed?) ratings did what first thing in the morning, whose non-sex tape was released over the weekend, who misspoke in the past 12 hours, but most importantly how no matter who is in charge on November 7, nothing will actually change. Finally, what better way to start your Sunday than with a laugh at some politicians' expense?
Standing in Legoland in Carlsbad, California in 2011, fulfilling a promise to my then eight-year-old son William, it hit me. I was strolling around a Blackstone-owned property. We'd woken up in a Homewood Suites, owned by Blackstone-backed Hilton. We'd driven to the park in a rental car from Hertz, owned by private-equity firms Carlyle and Clayton, Dubilier & Rice. Practically every time I'd opened my wallet that day, it had been to a company owned by private equity. Even on vacation, I couldn't escape. A few months later, I had dinner with Greg Brenneman, who'd held top positions at Continental, Burger King, and Quizno's, all private-equity-owned at the time he was involved. Brenneman is now the chairman of CCMP Capital, whose investments have included 1-800-Flowers.com and Vitamin Shoppe. We talked at length about the ubiquity of PE ownership -- my J. Crew sweater, the Dollar General store in my wife's hometown in the Catskills. I started a running list on my BlackBerry that quickly grew to dozens of examples. Brand names piled up, from Toys "R" Us to Petco. The more I looked, the more I found it. The numbers are staggering. Private-equity firms globally and collectively had almost $3 trillion in assets at the end of 2011. The companies they own account for about 8 percent of the U.S. gross domestic product by one estimate.
Even if both the Bush tax cuts and emergency unemployment insurance are extended, the 'sequester' is mostly postponed, and the fresh fiscal drag is confined to the expiration of the payroll tax cut and the new taxes to pay for Obamacare, Goldman estimates suggest that fiscal policy would shave nearly 1.5% from real GDP growth in early 2013. While it seems the 'market' believes that some compromise will be enough to lift the market to new stratospheric heights; we believe, as does Goldman, that the risks are almost exclusively on the downside of this 'not so good' fiscal scenario.
Individually, it seems, most Fed officials accept the chief recommendation of monetary theorists, such as Michael Woodford of Columbia University, about how to conduct policy when the nominal federal funds rate is stuck at its zero lower bound. The problem they face rather explicitly, as Morgan Stanley's Vince Reinhart points out, is how to translate the advice from economic textbooks to the application of policy by the diverse group of people on the FOMC. Reinhart goes on to ask, rhetorically, if a conditional policy rule works so well in theory, why has it not been put into practice? Congress instructs the Fed to foster maximum employment and price stability but gives no guidance on weighing deviations from those goals in the short run. If the FOMC cannot agree on the weights, then they cannot agree on a rule. As a result, the Fed is living out a collective action problem, in that officials individually support a rule but collectively cannot agree to a single rule. This leaves Fed officials are now in the improvisation phase of their monetary policy experiment. That does not seem to us like a 'good' thing for the most powerful entity in the world.