Archive - Aug 5, 2015

In historical context, this uninterrupted inventory accumulation is by any count extreme (the last time it was this high, scaled by real GDP, was just prior to the Asian flu in early 1998). This is a major problem for future growth, one that has been building for more than a year which is why the constant mainstream references to the great recovery are so very unhelpful. Anyone inclined to believe in the fantasy only makes this process more drawn out and, in the end, susceptible to that much greater of a downside to restore productive balance. In short, we already have the outlines of recession with the full weight of recession processes yet to be released.

In an attempt to publicly shame CEOs into lowering their pay, or boost the compensation they pay their employees (because the forces of labor supply and demand apparently no longer work) moments ago, in a 3-2 vote, the SEC approved a rule Wednesday requiring companies to reveal the pay gap between the chief executive officer and their typical worker. The problem: this latest attempt at wealth redistribution will backfire massively, lead to even higher comp for executives, while assuring an even faster collapse for the US middle class.

Paul Volcker's "policy and demeanor were very solid," explains Donald Trump in a brief Bloomberg TV interview, pointing out that the inflation-taming former Fed head is a role model for the type of central banker he would pick. While admitting he "has always done well in a low rate environment," Trumps slammed the current Fed's ZIRP for "creating a bubble.. and the bubble could explode." Trump had  - as usual - plenty to say on topics from Ex-Im Bank (against it as not "free enterprise"), to campaign financing (favoring full transparency of money in politics) careful to brag - jabbing at The Kochs - that "I don't need anybody else's money."

Pervasive “occupancy fraud in lending” – purposely misidentifying “investment” properties as “second/vacation” for the purpose of obtaining prime, “owner-occupied”, low-down payment mortgages vs expensive “investment” property loans — is back in a big way and driving housing demand, based on NAR’s “2015 Investment and Vacation Home Buyers Survey”. It comes on the heels of a multi-year cycle of increasingly “bad” appraisals – a widespread problem — by the Appraisal Management Companies (AMC) that in Bubble 2.0 are similarly conflicted, as independent residential appraisers were during Bubble 1.0 . Both appraisal and occupancy fraud are primary features to a speculative, house-price bubble. This is an identical replay of 2005 to 2007 that nobody recognizes, expects, or is even looking for, which will present an opportunity at some point.

Other than THAT, It's Great!

"I could tell [Tsipras] was dispirited. It was a major victory, one that I believe he actually savoured, deep down, but one he couldn’t handle. He knew that the cabinet couldn’t handle it. It was clear that there were elements in the government putting pressure on him. Already, within hours, he had been pressured by major figures in the government, effectively to turn the no into a yes, to capitulate."

What is going on here: is it just more seller than buyers, who are frontrunning an epic curve flattening or even inversion as may well happen once the Fed launches its rate hiking cycle? Or is something else happening behind the scenes. We ask because in addition to the normal selloff in cash and derivative products, something far more dramatic took place in the repo market where the repo rate on the 2Y just suddenly plunged out of nowhere.

Earlier this year, Germany’s attorney-general Harald Range has suspended the investigation into the NSA phone tapping affair. Due to Edward Snowden’s revelations, it had emerged that the NSA had wire-tapped even chancellor Merkel’s mobile phone. The reason for suspending the investigation? “We can’t prove it, and the Americans won’t tell us anything”. Of course documented proof does exist, and US officials have even admitted to tapping Ms. Merkel’s phone. It couldn't be any clearer that Germany is essentially a US vassal state. Since then, a plethora of NSA and BND-related scandals has emerged. But now, the president of Germany’s “Federal Office for the Protection of the Constitution” (another spook agency) brought criminal charges against journalists working for the online publication “Netzpolitik”. Allegedly, the journalists are guilty of treason. Their offense? They reported on the spook bureaucracy’s plans to vastly expand internet surveillance of Germany’s citizens.

"The ayatollah constantly believed that we are untrustworthy, that you can’t negotiate with us, that we will screw them. This will be the ultimate screwing. We cut a deal, we stand up, it’s announced, five other countries believe in it—six other countries, because Iran signs off, and we’re the seventh—but you know, China, Russia, France, Germany, Britain, all sign off."

Well that escalated quickly...

What many have tacitly known for a long time was finally confirmed overnight when an analysis of Federal Election Commission data by Vocativ and The Daily Beast found that of the 60 or so ultra-rich Americans - aka the mega-donors - who have contributed to both Jeb Bush’s and Hillary Clinton’s federal campaigns, seventeen of those contributors have gone one step further and opened their wallets to fund both Bush’s and Clinton’s 2016 ambitions.

The US and Turkey are set to launch a "comprehensive fight against ISIS" with Turkey's Incirlik airbase as the hub, Ankara says. Other countries "interested in joining" the coalition include Jordan, Qatar, and Saudi Arabia. For its part, Syria has a subtle reminder for everyone involved: "we support any effort to combat Daesh in coordination and consultation with the Syrian government, otherwise it will be a breach of Syrian sovereignty." 

Despite CNBC's focus on 'lows are in' after a bigger than expected inventory draw, the realization that production continues to surge has cratered WTI crude which is now trading with a $44 handle!! This is the lowest in 5 months.

At 1000-to-1, Kim Kardashian is an outsider in the race to be the next US President but perhaps most notable in the odds that bookies are willing to offer is the 7th place that Donald Trump ranks (at 18-to-1 or just a 5% probability of winning), below GOP rivals such as Jeb Bush (23% probabiity) and Marco Rubio (11% probability). Trump even ranks below Bernie Sanders and Joe Biden according to where the money is being bet! Of course, Hillary remains the odds-on favorite at 10/11 (or 52% probability).

As technology generally continues to advance, one thing you can be sure of is the criminal justice system’s use of innovative new “tools” will grow exponentially. This can be a good thing, but it can also be a very dangerous thing. Pennsylvania’s new law that permits the use of data showing whether people are “deemed likely to commit additional crimes” in criminal sentencing, is a perfect example of how an over reliance on technology can be a threat to liberty and due process.