Archive - Sep 10, 2013 - Story

The Japanese Self-Defense Forces were on a high state of alert on September 9 ahead of the first anniversary of Japan’s controversial purchase of islets in the disputed Senkaku/Diaoyu archipelago, particularly after a pair of Chinese bombers flew near Okinawa the previous day. Japanese Defense Minister Itsunori Onodera has ordered military personnel to strengthen their surveillance around the Senkakus, which are also claimed by China and Taiwan. A source in the Japanese government indicated that the People’s Liberation Army (PLA) and Chinese maritime enforcement could take “outstanding” action in the area on September 11, the first anniversary of the purchase.

Republican National Committee (RNC) Chairman Reince Priebus released the following statement following the president’s address to the nation on Syria:

“The administration’s handling of the U.S. response to Syria has been so haphazard it’s disappointed even the president’s most ardent supporters,” said Chairman Priebus. “This rudderless diplomacy has embarrassed America on the world stage. For a president who campaigned on building American credibility abroad, the lack of leadership coming from the Oval Office is astounding.”

When it comes to the very simplest axiom on modern Keynesian economics, it seems one can't repeat it enough times: have leverage, have growth... don't have leverage, don't have growth.  That is the reason why in early summer, China tried to conduct a mini-taper of its own to streamling its monetary pipeline which had been so filled with bad and non-performing credit, that the PBOC effectively pulled the switch on new liquidity for over a month.  What happened almost immediately after, when rates on ultra short term funding soared to 20%+, nearly destroyed the domestic banking system and resulted in a major slowdown in the Chinese economy. "Luckily" for China, its close encounter with the taper was brief, if quite painful, and following a period of shock, the Chinese central bank had no choice but to resume injecting banks with their daily dose of monetary morphine all over again. This in turn, has brought us to square one: nothing in the local banking system has been fixed, and what's worse, while China has bought itself a few months respite, the dominant old problem of a collapsing credit impulse, as decribed before, in the country with the largest corporate credit bubble in the world, is about to come back with a bang in a few short months. In short: China just did what the US has boldly done so many times before - kicked the can.

UPDATE 2: French draft UN security council resolution would give Syria 15 days to make complete declaration of entire chemical arms program

UPDATE 1: NASDAQ Futures are fading the Obama "Pause" spike after AAPL is not announcing a China Mobile deal

Starting just 1 minute late, the President begab by unapologetically conjuring images of WWI and WWII and stuck to the line that "we know" Assad was responsible for killing his own people with Sarin. Then moved to fear-mongery over what Iran might do, adding that he was very much for strikes. But, in giving Congress the hot potato he knew decision would be difficult. The US military does not do 'pin pricks' and a "targeted" strike will send a message to Assad. While recognizing the need for a diplomatic solution, Obama made it clear that those efforts would follow a military strike. But then, after all the angry banter, he then backed down and said, will work for peaceful solution by putting the strike on hold and will bring a resolution to UN. Ending on a more aggressive note, he warned Republican and Democrat lawmakers to rethink their opposition to the strikes should they be needed.

'War-Drums', 'told-you-so-dance' on chemical weapons, or 'this was the cunning plan all along and the Russians played along perfectly' - we wonder which script will hit the teleprompters first tonight... and should we still be fearful of North Korea and Iran sending Sarin into the US? We are sure there will be something for everyone in this speechapalooza...

Whenever something bad happens – Iran moving closer to acquiring nuclear weapons, North Korea firing another missile, civilian deaths reaching another grim milestone in Syria’s civil war, satellites revealing an alarming rate of polar-ice melt – some official or observer will call upon the international community to act. There is only one problem: there is no “international community.” In short, those looking to the international community to deal with the world’s problems will be disappointed. This is not reason for despair or grounds for acting unilaterally. But so long as “international community” is more hope than reality, multilateralism will have to become more varied.

According to the latest whip count on Syria attack proposal in the House, 237 reps oppose a such a strike and 169 are undecided with just 27 are for. While this number guarantees that no vote will ever come to pass, and humiliate Obama, who if anything will revoke the punt to Congress from September 1 and unilaterally engage in strikes to appease assorted Saudi/Qatari interests, all that would take for the 27 Yay votes to become 28, would be for Obama to return the Nobel Peace Prize. According to The Hill, a Republican lawmaker said he'll vote to authorize military action against Syria if President Obama returns his Nobel Peace Prize. The line between reality and an alternative Onionesque universe is thin, but this is not a joke.

With an hour until yet another "most important speech of his Presidency", we thought it useful to reflect on the nation's support. While we already know the nation's "representatives" were absolutely not behind him on the Syria vote, it appears the people themselves - poor lowly serfs though they are - are not approving in general. In fact, Obama's approval rating is practically at all-time lows - and consequently disapproval near all-time highs. Will a 'we-are-strong-but-diplomacy-won' speech help tonight? Or will Obama press the 'Strike' and risk a further collapse in his approval (with 63% of Americans against getting involved in Syria)?

In the first three parts (Part 1, Part 2, Part 3) of this disheartening look back at a century of central banking, income taxing, military warring, energy depleting and political corrupting, we made a case for why we are in the midst of a financial, commercial, political, social and cultural collapse. In this final installment we’ll give our best estimate as to what happens next. There are so many variables involved that it is impossible to predict the exact path to our world’s end. Many people don’t want to hear about the intractable issues or the true reasons for our predicament. They want easy button solutions. They want someone or something to fix their problems. They pray for a technological miracle to save them from decades of irrational myopic decisions. As the domino-like collapse worsens, the feeble minded populace becomes more susceptible to the false promises of tyrants and psychopaths. Anyone who denies we are in the midst of an ongoing Crisis that will lead to a collapse of the system as we know it is either a card carrying member of the corrupt establishment, dependent upon the oligarchs for their living, or just one of the willfully ignorant ostriches who choose to put their heads in the sand and hum the Star Spangled Banner as they choose obliviousness to awareness. Thinking is hard. Feeling and believing a storyline is easy.

In August 2012, when isolating one of the various reasons for the latest housing bubble, we suggested that a primary catalyst for the price surge in the ultra-luxury housing segment and the seemingly endless supply of "all cash" buyers (standing at an unprecedented 60% of all buyers lately as reported by Goldman) is a very simple one: crime. Or rather, the use of US real estate as a means to launder illegal offshore-procured money. We also identified the one key permissive feature which allowed this: the National Association of Realtors' exemption from Anti-Money Laundering provisions. In other words, all a foreign oligarch - who may or may not have used chemical weapons in their past: all depends on how recently they took their picture with the Secretary of State - had to do to buy a $47 million Florida house, was to get the actual cash to the US. Well good thing there are private jets whose cargo is never checked. It appears that a year later this too hypothesis has been proven. Earlier today the Post reported that "U.S. authorities announced Tuesday that they are seeking forfeiture of pricey Manhattan real estate linked to a fraud they say was uncovered by a whistleblowing Russian lawyer before he died behind bars. A civil forfeiture complaint filed against the assets of a Cyprus-based real estate corporation and other holding companies alleges that some of the proceeds from the $230 million tax fraud in Russia were laundered through the purchase of four luxury condominiums located in a Wall Street doorman building and two commercial spaces in prime locations in midtown and Chelsea."

"I think it’s pretty damning," notes on complainant after receiving the detailsof the NSA's action over the last few years, adding "This shows a larger pattern that a lot of times the NSA doesn’t alert the court to serious privacy violations, whether they are intentional or unintentional, for years down the road." As Bloomberg reports, intelligence officials were forced to admit that The NSA for about three years violated restrictions on checking U.S. telephone records for surveillance and misled judges on how the data was used. Between 2006 and 2009, of the 17,835 phone numbers checked against incoming phone records, only about 2,000 were based on that reasonable suspicion standard, officials said. Despite Gen. Alexander's statement that "this is not a program where we are out freewheeling it," adding in June that "it is a well-overseen and a very focused program," it is now clear that "there was nobody at the NSA who had a full understanding of how the program worked," as one intelligence official noted.

While the world is currently glued to the events surrounding Syria; the reality is that such an event has very little to do with the real economy.  The surges in expectations by business is very interesting given the actual demand that drives the real economy.  Real employment remains weak and corporate earnings are struggling given the diminishing returns of cost cutting. The recent increases in interest rates also have a very important "tightening" effect on the "Main Street" economy which will also likely suppress consumption in coming months somewhat.  Also not likely factored in to current survey's is the upcoming debt ceiling debate and the onset of the Affordable Care Act (ACA).  The ACA is a de facto increase in taxes and there is a potential for further tax hikes coming from the budget debate. The current NFIB survey suggests that the economy is still stuck in "struggle mode" and an acceleration above 2% real economic growth is currently unlikely.  The divergence between expectations and real demand will likely converge in the next couple of months so we will see businesses follow through with their optimisitic outlooks - "Overall, the Index of Optimism says the small business sector is going nowhere and that's what it feels like."

As long as you ignore AAPL, today was a good day for all the bright shiny happy people who own stocks. Trannies finally snapped higher catching up to the other major indices with their best day in 6 weeks, Nasdaq closed at its highest since Nov 2000 (despite selling off for the afternoon as AAPL disappointed with pretty colored plastic stuff) with a 6-day winning streak. All sectors are now green post-Kerry's 8/36 speech with homebuilders surging from worst (-4%) to first (+2%) in the last few days. The exuberance (if not the volume) is palpable. Hedgers were once more disabused as VIX collapsed and stock indices close well above technical levels. The USD did absolutely nothing even as AUD sold off for most of the day. Treasuries were smashed higher in yield after diverging lower in yield from the open through lunch. 10Y was oddly correlated to AAPL's drop as the yield pushed up to 2.97% (and AAPL fell 2.4% by the close). Silver and Oil were hammered lower (-3.75% and 3% respectively from Friday) though we note Gold (which is down 1.9% from Friday) pushed higher from the US day session open today. All-in-all, the equity market seems convinced that Europe, China, and Japan are all good and Syria is a dud (oh and Taper - who cares!)

At 1615ET, DoubleLine's Jeff Gundlach will begin his firm's latest presentation of his market views. We already know his views on the potential for higher rates and the inevitability of the taper, "the 10Y Yield may go up to as highs as 3.1% by year-end," because "investors have switched from "I don't care about volatility, I want income" to "I don't care about income, I dont want volatility." While he previously noted he "sees no sign of that changing...", we wonder if the title of his always full of charts presentation sets up for some change - "what if?" Full presentation to follow...

"It's getting concerning," notes one fixed-income banker, Puerto Rico muni bond yields "never got near 10% [yields] even in the crisis." Some of the 27-year maturity Puerto Rico bonds just traded at a dismal 67 cents on the dollar (10.082% yield) and the most recently issued 2036 Electric Power bonds have collapsed from par a month ago to just above 82 cents on the dollar today. As the WSJ reports, the fall in prices also is a sign of investor risk aversion in the wake of Detroit's record municipal-bankruptcy filing in July; but it seems the anxiety and outflows from ETFs is having just as big an impact as Puerto Rico bonds now trade cheaper than Detroit's. "It's out of whack," one analysts warns, though the island's double-digit unemployment and recent weakness in economic indicators somewhat support the concerns - and while the "yields are attractive" it is possible that the island's borrowing costs could go higher as supply is extremely heavy in coming months. With 77% of managers holding Puerto Rico bonds, this is a problem...