The Fed’s decision not to taper surprised the financial world as many believed some token amount of tapering would have been announced. Recent declines in Federal deficits afforded the Fed discretionary room. For the first time in several years it was possible to taper without infringing on the government’s ability to pay its bills. Perhaps the economy is worse than the Administration wants to let on (and it certainly is). The Fed may have felt it necessary to come out of the closet regarding this latter charade, trying to prevent another economic downturn. Just as the economy no longer responds to Fed stimulus, financial markets will eventually reach this point. Whether that occurs sooner or later is anyone’s guess, but the fraud of overvalued financial assets becomes more apparent with each injection of liquidity. Market participants should be aware of the game that is being played.
This is The System Of The World. It lays out in logical frankness how the various layers of the facade we call “democracy” and “free markets” interoperate and together create a grotesque caricature of the ideals they purport to serve and keep us all enslaved. Join us on a trip through The System.
Japan’s core CPI (which excludes perishables) surged 0.7% y/y in July, but the upturn is largely due to higher prices for energy that reflect rising import prices due the yen’s weakness. Despite global exuberance at Abe's "progress", BNP notes that there are still no signs of price growth for rent and service prices, factors behind Japan’s protracted deflation. Crucially, BNP believes that Abenomics could lead to four possible medium-term outcomes: (1) Continued deflation (35% probability), (2) Financial repression (40%), (3) High inflation (15%), and(4) Happy end to deflation via revived trend growth (10%). Furthermore, even if this happy ending scenario were to unfold, that does not mean that structural problems, like the swelling public debt and insolvent social welfare, will be headed for resolution.
When people think failed or busted Treasury bond auction, they usually imagine something out of Brazil or Russia where the government was selling obligations and nobody showed up. Of course, in the US, courtesy of the Primary Dealer system and more importantly, of a multi-trillion shadow banking system, where bonds are cash equivalent following rehypothecation and pledging for cash-equivalents with virtually no haircut, there is no risk of an auction failing in the conventional sense, at least not until Bernanke finally manages to irrevocably erode the Dollar's reserve currency status. However, that does not mean that auction's can't "fail" in a purely technical sense. Which is exactly what happened during last week's sale of 3 month Bills, when due to a "glitch" in the system not only was a key Primary Dealer locked out of the auction, forcing the US Treasury to arbitrarily reassign allotment in the parallel 6 month auction, but leading to a wild intraday mispricing in the already collateral-scarce, short term bond market.
In a tight 217-210 vote, The House voted this evening to 'taper' food stamps by $39 billion over the next decade. This bill - setting up a showdown with Senate Democrats - cuts nearly twice as much as a bill that was rejected in June, and, as USA Today reports, dramatically larger than the $4.5 billion 'trim' that was passed by the Senate earlier in the year. The bill would cause 3 million people to lose benefits while another 850,000 would see their benefits cut, according to the non-partisan Congressional Budget Office. Republicans argued that the bill would restore the program's original eligibility limits and preserve the safety net for the truly needy. The White House threatened Wednesday to veto the bill, calling food stamps one of the "nation's strongest defenses against hunger and poverty." Of course, as long as the Dow is trading at all-time highs, it doesn't really matter... since the number of people on Food stamps in the US is already greater than the population of Spain!
Just when you thought the situation in Syria was stabilizing (despite dueling op-eds), last week saw a new battle begin - dubbed "Expunging Filth". In spite of the catchy name, as the WSJ reports, an al-Qaeda spinoff (a jihadist group known as ISIS) is seizing territory across Syria from the US-backed Free Syrian Army and the Government. "It's a three-front war," a U.S. official said of the FSA rebels' fight: They face the Assad regime, forces from its Lebanese ally Hezbollah, and now the multinational jihadist ranks of ISIS. As WSJ notes, the spread of ISIS illustrates the failure of Western-backed Syrian moderates to establish authority in opposition-held parts of Syria, some of which have been under rebel control for over a year. "It's still the case that a majority of Syrians are not up for Talibanization," but given the spread of ISIS, their choices may become increasingly limited.
On Sept. 15, the last operational nuclear reactor in Japan was shut down for routine maintenance, which may leave Japan without nuclear power for the remainder of 2013. In all likelihood, restarting nuclear power will be a long, gradual process that will have only limited, regionalized impacts at first. In the meantime, Tokyo will continue to rely heavily on more expensive thermal power. The difference has meant that several utility companies have been forced to increase rates over the past several months, which are certainly impacting Abe's ability to hike taxes any further.
Speaking at Georgetown University's Business School alongside his best-bailed-out buddy BofA's CEO Brian Moynihan, Warren Buffett has some rules (or goals) for the "wealthy" that are summed up perfectly in this quote:
- *BUFFETT: RICH MUST LEARN TO LIVE ON $500 MILLION, DONATE REST
- *BUFFETT SAYS WE HAVEN'T LEARNED WELL ENOUGH HOW TO SHARE WEALTH
- *BUFFETT SAYS PEOPLE WILL CONTINUE TO MAKE MISTAKE OF GREED
- *BUFFETT: SOCIETY MUST ENSURE PEOPLE DON'T FALL TOO FAR BEHIND
We suspect more than a few of the "rich" will be calling for Mr. Bernanke to get back to work (which ironically is exactly what Buffett himself just did - calling for another term for the printer-in-chief) so they can 'share the wealth' from the poor just a little longer.
If you start at 4.2% and end at 2.1%, is that a 100% error, or "only" 50%?
Are you ready for Janet Yellen? Wall Street wants her, the mainstream media wants her and it appears that her confirmation would be a slam dunk. She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is actually good for an economy. She was reportedly the architect for many of the unprecedented monetary decisions that Ben Bernanke made during his tenure, and that has many on Wall Street and in the media very excited. Noting that we "already know that Yellen is on board with Bernanke's easy money policies", CNN recently even went so far as to publish a rabidly pro-Yellen article with this stunning headline: "Dear Mr. President: Name Yellen now!" But after watching what a disaster Bernanke has been, do we really want more of the same? It doesn't really matter whether she is a woman, a man, a giant lizard or a robot, the question is whether or not she is going to continue to take us down the path to ruin that Bernanke has taken us.
Yesterday's epic short squeeze in bonds (belly-specs were most short in years) and stocks ("most shorted" were heading notably lower into the statement) seems to have flushed out any and all the marginal buyers (for now) on the basis that the Fed will not be Tapering any time soon. Simply put, the best performers from yesterday were the worst performers today with 5Y and 7Y Treasury yields underperforming (+6bps or so) and the long-end retraced more than half its yield move yesterday. In stocks it was the same story, builders and utilities were the biggest losers today after being the best yesterday. The USD retraced higher with JPY weakness (Abe was not happy) as a major driver (testing up to 99.50). WTI Crude unwound all its Fed gains and then some, trading back to around $106 by the close. Gold, silver, and copper were the winners on the day - extending gains modestly. Stocks tracked oil and bonds today (not FX carry), AAPL slid into the close on disappointing UK pre-order rumors, and HY credit underperformed stocks.
In a world in which when the numbers don't comply with the propaganda, the only recourse is to change the rules, and if that fails, change the numbers themselves (see Fukushima radiation count, US GDP, Employment numbers, anything out of Europe, etc.) it was only a matter of time before that last sticking point of the grand made up narrative, the lack of economic improvement in the European despite evil, evil austerity (which somehow has resulted in record debt which is rising faster than expected virtually everywhere in Europe) resulting in unpalatable deficits, was magically "fixed." This was resolved moments ago when as the AP reports, "European Union finance officials have reached a preliminary agreement to change the way the bloc determines some deficit figures, which might lessen the pressure for austerity measures in crisis-hit economies." In other words, Europe's "recovery" will now be based on even more made up numbers. One wonders: since Europe is finally admitting that the numbers are fake, i.e., lying, are things finally getting truly serious again?
“Truth. noun. The quality of state of being in accordance with fact or reality.” This is how the dictionary defines truth: it can be ‘fact’. But it can also mean ‘reality’. The people who control the system have figured this out - if they can change someone’s reality, they control the truth. This is also the case in finance and economics. For example, I heard the following statements just in the last 48-hours while visiting the Land of the Free: “America will never default on its debt.” , “The debt doesn’t matter because we owe it to ourselves.” Again, these statements are totally unsupported by the facts. The notion that the US government won’t default on its debt is simply historically inaccurate. Such close-mindedness is dangerous, especially in economics. People’s lives and livelihoods depend on an objective understanding of the facts, not this altered reality.
Putin hits the NY Times, Assad FOX and YouTube, McCain Pravda, and Putin making headlines this morning with all kinds of double-negatives:
*PUTIN: TOO EARLY TO THINK SYRIA MAY NOT FULFILL CHEM. ARMS PLAN
*PUTIN SAYS NOT 100% SURE SYRIA CHEMICAL ARMS PLAN WILL SUCCEED
So it only makes sense that John Kerry feels unloved by the media... cue a 1500ET press conference to explain how things are going...
Three weeks ago we explained the importance of the looming cliff - in the government's reserves of helium. With a never-ending pun-trail related to "hot-air" or markets "blowing up", we stick to the facts. With the threat of a glonal helium shortage potentially weighing on fibre-optic cables and flat-screen TVs, the always-reaady-to-negotiate members at the Senate have agreed to support an amendment that prevents the October 7th termination of the helium storage program. So thanks to political "hot air" (we couldn't resist), the helium cliff is resolved... why so easy you wonder? Perhaps this is why "...Helium is also used in national defense applications such as rocket engine testing and purging, surveillance devices, air-to-air missiles and scientific balloons."