Archive - Oct 3, 2014

While one can't help but snicker when the administration of a Nobel Peace Prize winner has launched at least 7 offensive wars, mostly against Muslim countries with virtually none obtaining prior approval from Congress, until now Obama at least showed the sense to realize that maintaining proper "made for propaganda media" optics matters, even if his underlying actions were the very definition of hypocrisy. And then something snapped. As reported by Yahoo News, the White House has acknowledged for the first time that strict standards President Obama imposed last year to prevent civilian deaths from U.S. drone strikes will not apply to U.S. military operations in Syria and Iraq. A White House statement confirmed the looser policy came in response to questions about reports that as many as a dozen civilians, including women and young children, were killed when a Tomahawk missile struck the village of Kafr Daryan in Syria's Idlib province on the morning of Sept. 23.

Despite constant cries of "isolation" from The West, China's popular support for Russia has risen since Moscow's confrontation with the West over Ukraine - rising to 66% in July from 47% a year earlier. That is borne out dramatically, as WSJ reports, books on Mr. Putin have been flying off shelves across China since the crisis in Ukraine began, far outselling those on other world leaders; leaving book-shop staff members with no doubt which foreign leader customers are most interested in: President Vladimir Putin, or "Putin the Great" as some Chinese call him.

Those of you who thought volatility was high this past week just wait until the Fed waits to the “Whites of the eyes of inflation” before raising rates.

"...the road to poverty is paved with small inflations."

If there is a major Ebola pandemic in America, all of the liberties and the freedoms that you currently enjoy would be gone. If government officials believe that you have the virus, federal law allows them to round you up and detain you "for such time and in such manner as may be reasonably necessary."

Every quarter we take a break from all the standard economic indicators to look at a range of alternative data.  The purpose here is to pose the question: “Does the consensus view of the U.S. economy square with what real people do in their day to day lives?” Overall, the news from “Off the Grid” challenges the notion that the U.S. economy is on solid ground and accelerating.  Inching forward, yes... But not much more.

The 100-day moving average of the advance/decline ratio for the MSCI World Index has collapsed to its lowest level since November 2008.

Market weakness, as BofAML reports, has taken a toll on mutual fund and ETF flows, with stocks (-$9.56bn), HY bonds (-$1.56bn) and levered loans (-$1.17bn) all reporting significant outflows last week (ending on October 1st). There is a clear "up in quality" and "up in capital structure" rotation among investors as investment grade bonds saw huge inflows. Notably, most PIMCO funds, including the Total Return Funds, do not report flows weekly, and hence the bulk of this outflow was not reflected in the last week’s data. In a statement PIMCO said that outflows from the Total Return Fund totaled $23.5bn in September, so we will have to see just where that outflow hit.

Due to the trend of renting as opposed to buying by average citizens, there has been an enormous construction boom of apartment complexes across the U.S. However, as Bloomberg reports, the U.S. apartment-vacancy rate rose for the first time in almost five years. Rents are still rising, but for how long? Unless incomes rise substantially, it will be difficult to continue this trend, which is why so many of the financial players have already started bailing on the “buy-to-rent” strategy. And today's zero wage gains does not help support the positivity.

We Need to Stop PRETENDING We're Prepared ... and Actually GET Prepared

Despite ongoing outflows, Russian President Vladimir Putin confirmed earlier statements by the Central Bank ruling out any measures to stop the flow of money from his nation (following rumors that they were weighing capital controls sent the Ruble to fresh record lows against the USD). The central bank continues to make "small interventions" but the Ruble has pushed to new record lows this morning nevertheless, as Bloomberg reports, restating "the first principle is the lack of limits on capital movements." In order to "curb risks" from ongoing outflows, Putin said on Thursday that Russia wants to shift to national currencies in trade deals with China and other countries, implying a shift away from the U.S. dollar. That appears to be strengthened further this morning as Putin signs law ratifying a Eurasian economic union.

Just my take on the whole Ebola situation which is unfolding at a rapid speed. As we are all well aware by now, Ebola is rapidly spreading across West Africa, and has made it to shore here in the U.S. Government officials are coming out in droves to tell citizens that the situation is under control and contained. They claim that Ebola does not spread easily like the flu or a cold, and that you can only contract the virus from exposure to bodily fluids.

"October: This is one of the particularly dangerous months to invest in stocks. Other dangerous months are July, January, September, April, November, May, March, June, December, August and February.” - Mark Twain

Despite President Obama's assurances that the chances of Ebola spreading to America were very small (against experts' opinion that it was about a 20% probability), "it" is here; and so we look forward to hearing from The White House top experts on how well "contained" it is (despite 100 under surveillance and another case in Hawaii and in Washington) and why there's no need for widespread panic.. at least not until the entire Government's 160,000 HazMat suit order is filled...

Despite a low-volume melt-up in stocks off yesterday's European close lows, US equities closed lower on the week with small caps once again the laggards. Even as stocks closed red, the costs of protection in credit and equity markets tumbled as the last 2 days volumeless liftathon in stocks took place against the background of very modest Treasury selling - this has the stench of high-yield bond exposure being significantly reduced (and synthetic hedges being lifted) - something we saw Wednesday into the close. The USDollar rose the most in 15 months today (up for the 12th week in a row - longest streak since Bretton Woods) led by Cable and EUR weakness. Jobs data losses in bonds today were largely reversed with TSY yields ending the week down 7-9bps. Commodities were ugly with silver and oil (under $90) joined at the hip and gold closing below $1200 for first time this year. The Russell 2000 closed lower for the 5th week in a row, the worst streak since Aug 2011.