Archive - Dec 2015

“There have been arrests and crackdowns before on grass-roots labor organizations here,” one activist, He Shan, said in a telephone interview from Shenzhen, a mainland city that abuts Hong Kong. “But this is the most concentrated, the most serious. For us, this is unprecedented.”

Monetary policy 'rules' are no more accurate at determining interest rates than meteorologists are at forecasting the weather. The only difference between the two is that weathermen are precise on occasion, whereas the federal funds rate under the Taylor Rule is, at best, less wrong. Setting the price of money and credit in the name of unleashing the economy’s supposed potential output is the equivalent of enacting price controls on milk to unlock its full buying power. It’s a fallacy that cannot be achieved. The sooner the Fed pawns off its printing press, the sooner its market distortions will be lifted; and the sooner that each individual will be able to make rational decisions that make sense for not only himself or herself, but for the economy at large as well.

The best gun salesman in America is about to explain how he will 'fix' the new un-normal rash of mass shootings, terrorist-attacks, murders, and general civil disorder by continuing down the path of stricter, tighter, confiscation-er gun control laws. As we previewed earlier President Obama wasted no time to launch this impromptu address to the nation at 8:00 pm on the "threat of terrorism and keeping the American people safe." Administration staff confirmed that the president will specifically call on Congress to review certain gun control measures. In short, the latest steps in Obama's crusade to disarm the US and make even legal purchases of guns as difficult as possible, even though limiting the legal means of purchasing guns will have absolutely no impact on gun violence in the US - for the perpetual case study, see Chicago. That, however, does not mean that Obama won't try or succeed.

"It is our humble belief that the consensus at the Fed does not fully understand the magnitude of the problems in corporate credit markets and the unintended consequences of their policy actions."

You've seen those internet ads that offer "one weird trick" for eliminating belly fat or boosting testosterone, right? Well, here's one weird trick for getting rid of ISIS and boosting our security from terrorism. The "trick" is non-intervention. And it is only weird in the sense that it is so uncommon in this age of war. Nonetheless, it works. The "one weird trick" has three easy steps. These steps are only "easy" for Westerners, because they basically amount to us refraining from constantly screwing things up. Once we get out of their way, the hard work will be done by locals, which is as it should be.

As we approach the Fed meeting expect markets to get more volatile. While the odds favor a move, it isn’t a sure thing until it is actually done. We found out last week what happens when forward guidance turns out to be forward misdirection. All those traders who thought they had a sure thing, who assumed that Draghi wouldn’t dare disappoint the market, got whipped. Whipped good.

“The new levy raised the estimated cumulative income tax on Wal-Mart Puerto Rico Inc. to an astonishing and unsustainable 91.5% of its net income!”

It’s important to respect the power of econometric models. It’s important to work with econometric models. But we don’t care who you are... whether you’re the leader of the world’s largest central bank or you’re the CIO of an enormous pension fund or you’re the world’s most successful financial advisor... it’s a terrible mistake to trust econometric models. But we all do, because we’ve been convinced by modeling’s henchman, The Central Tendency.

"...Should you continue your flagrant support of Saudi Arabia by way of foreign aid and weapons sales, you are no longer to be trusted to hold an elected position of influence. You should therefore resign, effective immediately. The question is: Is your allegiance to the people of the United States, or are you beholden to another kingdom?"

"What you're going to hear from him is a discussion about what government is doing to ensure all of our highest priority — the protection of the American people," the US attorney general said. Lynch's staff later confirmed that the president will specifically call on Congress to review certain gun control measures. And since Congress has long ago given up on taking action in a world in which the Fed's Chairman/woman is expected to "get to work", it will again be up to an Obama executive order to restore peace to the land by continuing his crusade against the Second amendment.

With an all time high of 293 ounces of paper per ounce of registered physical gold, it appears hedge funds continue to ignore systemic risk and surging physical demand, merely following the trend lower in paper gold prices by adding to already record short positions in gold last week. With the speculative world near-record long the USDollar and record short gold, how much longer can the status quo boat can remain upright with so many on the same side. After this week's shake-out of USD longs courtesy of Draghi, one wonders if the gold squeeze is about to begin?

As we warned last week, Europe is about to change forever, and sure enough, Marine Le Pen's National Front party is on course for a historic result in regional elections on Sunday, winning more than 30 per cent of the vote and leading the country’s two mainstream parties. Our words from the day after the Paris attacks, when Le Pen called for "eradication" of Muslims and demanded the nation "re-arm itself," seem extraordinarlity prophetic now "if there is one 'winner' from last night's terrible events in Paris, it is France's anti-EU, anti-immigration far-right wing Front Nationale party leader Marine Le Pen."

Until pro-growth, low taxation and less regulation policy changes are enacted, we don’t foresee any changes to central bank policy nor the unsustainable market divergences and asset price distortions. Expect more media propaganda on how great the economy is while the reality is another story. Early signs are that retail sales this holiday season are poor. Nobody can predict when reality will set in and equity markets revert back to pre QE levels in 2008/09. The longer this charade continues, the lower equity markets will eventually go, and in the short-term so will commodities. Then the super cycle in commodities will begin anew. Much this will hinge on next fall’s election cycle.

In an age of uncontrollable political correctness and micro-aggression across America's colleges, one university has taken a different tack this week. Speaking to an estimated 10,000 strong campus community, Liberty University President Jerry Falwell Jr. urged students, staff and faculty at his Christian school to get a permit to carry a concealed weapon on campus, so that "we could end those Muslims before they walked in." Students reportedly erupted into applause at the call to arms.