Archive - Aug 15, 2014

Today's story of the day just took a major turn for the bizarre...

Aside from English (and Spanish), you may be surprised to find out what the most spoken language in your state is...

If you don’t understand the concept of “order out of chaos,” then you’ll never understand a thing. Each supposed disintegration of global unity has eventually led to greater centralization, and this is something the skeptics seem to forget. The progression of crises suggests that the next war will lead to total globalization under the dominance of a minority of elitists posing as "wise men" who only wish to bring peace and harmony to the masses. In the meantime, the skeptics will continue to mindlessly debate in the face of all reason that the whole thing was a fluke, an act of random mathematical chance, leading coincidentally to the one thing the establishment rulers crave: total global totalitarian micromanagement.

"We seem to be headed for such a fateful turn. We are approaching a serious turning point that may reshape the world as did 1932 following the economic trend of the Great Depression. We are witnessing the collapse of democracy."

Going into this year’s Jackson Hole meeting, it does not appear to BofAML's Ethan Harris that the FOMC is leaning toward a policy change as in 2010, let alone on the verge of a big shift as in 2012. Instead, the Fed is in a bit of a limbo state as it waits for clear evidence that 1Q GDP was a fluke and convincing signs of stronger wages. With significant policy changes a long way off, and with the intense market focus on Jackson Hole, we expect the Fed Chair to try to say nothing interesting about the policy outlook.

High yield mutual funds and ETFs reported a small $0.71bn inflow (of knife catchers) last week (ending on August 13th) after four straight weeks of outflows including a record $6.7bn outflow in the prior week. As BofAML notes, the turn in flows follows a strong rebound in high yield bond prices (drop in spreads), which (before the Ukraine news) had reversed more than half of the losses incurred in July. However, European high-yield funds saw further significant outflows, $3bn more compared to $4bn last week and European equities saw massive outflows. Furthermore, modest equity inflows hide the fact that the only buyer of stocks in the US remain corporates (buybacks) as institutional sellers dominate.

Back in the early 1990s, the North American Free Trade Agreement was one of the hottest political issues in the country.  When he was running for president in 1992, Bill Clinton promised that NAFTA would result in an increase in the number of high quality jobs for Americans that it would reduce illegal immigration.  Ross Perot warned that just the opposite would happen.  He warned that if NAFTA was implemented there would be a "giant sucking sound" as thousands of businesses and millions of jobs left this country.  Most Americans chose to believe Bill Clinton.  Well, it is 20 years later and it turns out that Perot was right and Clinton was dead wrong.  But now history is repeating itself, and most Americans don't even realize that it is happening.  As you will read about at the end of this article, Barack Obama has been negotiating a secret trade treaty that is being called "NAFTA on steroids", and if Congress adopts it we could lose millions more good paying jobs.

Texas Governor, and 2016 Presidential hopeful, Rick Perry has been indicted by a grand jury. Rather ironically, as AP reports, Perry carried out a threat to veto funding for state prosecutors investigating public corruption, promising publicly to nix $7.5 million over two years for the public integrity unit unless District Attorney Rosemary Lehmberg (who pled guilty to drunk driving) resigned. He was indicted by an Austin grand jury on felony counts of abuse of official capacity (maximum punishment 5-99 years in prison) and coercion of a public servant (2-10 years in prison). Perry is the first Texas governor indicted since 1917. Full indictment below. We have one word... oops!

There is a standard view of energy and the economy that can briefly be summarized as follows: Economic growth can continue forever; we will learn to use less energy supplies; energy prices will rise; and the world will adapt. The following view of how energy and the economy fit together is very different - it is based on the principle of reaching limits in a finite world.

As regular readers are well aware, when it comes to "more than arms length" equity market intervention in New Normal markets, the New York Fed's preferred "intermediary" of choice to, how should one say, boost investor sentiment aka "protect from a plunge", is none other than Chicago HFT powerhouse, Citadel. Yet one question had remained unanswered: just how does Citadel manipulated stocks? We now know the answer, and perhaps more importantly, it also links in to the true culprit behind the May 2010 Flash Crash, no not Waddell & Reed, but quote stuffing. Most importantly, the revelation that for Citadel quote stuffing is not just some byproduct of some "innocuous" HFT strategy, is that none other than the Nasdaq has now stated on the record, that the most leveraged hedge fund (at 9x regulatory to net assets), and the third largest after Bridgewater and Millennium, used quote stuffing as a "trading strategy."

“It’s a Little Misleading to JUST Call This a Depression. It’s WORSE Than That”

Having released the name of the police officer that allegedly shot and killed Michael Brown in Ferguson, the local police department has released the convenience store surveillance video that appears to show an altercation involving Brown.

This weekend’s “Things To Ponder” is comprised of a variety of readings that cover a fairly broad spectrum from educational to informative and even a little bit sarcastic.

About a year after it was first revealed that the US had spied not only on Angela Merkel but on virtually every German citizen, in a remarkable NSA-CIA tag-team joint venture, many were wondering why Germany is taking things so calmly (aside, of course, for the whole "Fed may need to bail out Deutsche Bank at any moment" bit). Turns out the answer is that Germany was doing the same all along and as the German press reveals today, the German Federal Intelligence Service (BND) has tapped at least one phone call of then Secretary of State, Hillary Clinton.

After surging all week on the worst volume of the year, US equities hit an air-pocket of reality this morning as last night's news of a Russian 'invasion' was confirmed by Ukraine (and UK reporters), denied by Russia, and met with silence from the US. Of course, thanks to a handy VIXnado, stock bounced back to VWAP, stabilized and closed the week in the green. The last two weeks have been the best for 7Y bonds in 10 months as it closes back under 2% for the first time since Oct 2013. Amid all this chaos, the US dollar closed unchanged on the week (giving up mid-week gains) as AUD and CAD strength dominated EUR weakness. Gold and silver - after a quiet week - was clubbed lower in the pre-open. Gold and oil surged higher on the Ukraine news - closing marginally lower on the week. VIX was cranked down to an 11 handle before Ukraine hit, surged back over 14.5, then jerked lower to close 'weaker' than stocks imply. Once again, US stocks surged once Europe closed (and of course, the panic buying into close makes perfect sense).