Archive - Nov 2, 2014 - Story

Nikkei 225 futures are up over 1600 points since QE ended and topped 17,000 in a quiet Asian holiday session. USDJPY topped 113, up a stunning 5 big figures since QE ended. But it's not all hyperinflationary ponies and rainbows as The Wall Street Journal stuns its readership by admitting "although economic theory says a falling yen should make Japanese goods more competitive overseas and boost exports, that didn’t happen." Of course, that merely means moar is needed and therein lies the problem as opposition (internal and external) to Kuroda's policies are growing. In other news, EURUSD retraced half its mysterious crash losses and China's Yuan fix weakened the most since March.

"Solutions to the world's problems are not produced in a meeting between Bill Gates and George Soros... Renewal has to come from below... Limiting the influence [of the richest] is of the utmost importance... so that today's upper-class, high-finance capitalism can once again revert to being a capitalism of the real economy and the societal center."

The short answer, of course, is "nothing" - Congress, or the presidency, have been irrelevant ever since the Fed fully took over the US some time in late 2008. Since then, it has been the role of the central printer of the US, working on behalf of the US banking syndicate, to "get to work", and cover up the fact that Congress, its make up, or its decisions, are now inconsequential. Still, there are those whose job is to overanalyze everything, and those, whose ideological persuasion, is to believe that what there is a difference between the "left" and the "right." Still, since someone has to pay attention to the proceedings in the most farcical and polarized, if only for public consumption purposes, Congress in history may as well present what The Hill thinks will happen. Here are the five areas to watch.

"Though [the shipping company] has played a pivotal role in McConnell’s life, bestowing the senator with most of his personal wealth and generating thousands in donations to his campaign committees, the drug bust went unnoticed in Kentucky, where every bit of McConnell-related news has generated fodder for the campaign trail. That’s because, like many international shipping companies, Chao’s firm is shrouded from public view, concealing its identity and limiting its legal liability through an array of tax shelters and foreign registrations. Registered through a limited liability company in the Marshall Islands, the Ping May flies the Liberian flag."

Two weeks ago, this happened to the world's allegedly most liquid On The Run bond on no news, which subsequently sent the entire market plunging before James Bullard was forced to hint at QE4 and send the market into a short-selling spasm that has since seen it hit record highs. Now, the "stability" of the world's (formerly) most liquid market has shifted to what used to be the most liquid FX pair, the EURUSD, which moments ago, on no new whatsoever - again - imploded, plunging to the weakest level since August 2012.

While the Fed and the BOJ were by far the biggest news of the past week, explicitly admitting that the world simply can not exist without one central bank passing the monetization torch to someone else, a surprising, and scare for its shareholders, development took place when REIT American Realty Capital Properties, with a then-market cap of over $10 billion, announced, under the cover of the Fed ending QE3, that it had overstated its adjusted funds from operation, a cash flow key metric used by REITs, from the first- and second-quarters of 2014.As the WSJ reminds us, while the amount of money involved, some $23 million, was "relatively small", the irregularities resulted in the resignation of the company’s chief financial officer, Brian Block, and chief accounting officer, Lisa McAlister.The result: a crash in the stock that wiped out nearly 30% or nearly $4 billion in market cap.

Even Edvard Munch would be unable to express his 'horror' at Obama's outlook into the Midterms...

...people love to hear about how technology always saves the day... "Among the thousands of shale producers, you can guarantee there are pioneers just like those who started the shale revolution. As profit margins erode due to low or even lower future prices, the pioneers will try out the revolutionary new shale techniques that have yet to be deployed." It sounds good in the same way that Twinkies taste good. We would remind people here that back in the 1700's the South Sea company, the stock shares of which bubbled up enormously - even causing Isaac Newton himself to lose the then-staggering sum of 20,000 pounds - was billed as “a company for carrying out an undertaking of great advantage, but nobody to know what it is". Would it be unreasonable to restate the author's claim as "shale operators to deploy new technology of great advantage, but nobody to know what it is?".  Ungrounded hype is the same thing no matter when or where it happens.

On average, people in advanced and emerging economies are considerably happier with their life situation than those in developing economies even though people in emerging economies are considerably more satisfied with their lives today than they were in 2007. However, as Pew Global Research survey shows, socialist utopias Venezuela and Argentina appear to be populated by a greater percentage of 'satisfied' people than 'American Dream'-ers in the USA. Perhaps the socialism-isation of 'fair' America is the right path to happiness?

When a central bank buys an asset directly (often government bonds), it drives up the price of this asset, the demand for which increases. But the prices of the other asset classes increase only if the economic agents that have sold the first assets to the central bank use the money received to buy these other asset classes. This transmission of increases in asset prices to all asset classes is therefore unstable, since it depends on the behaviour of investors and savers. There is therefore no stable monetary policy "risk channel"; the only asset prices that are controlled by central banks in the longer run are those of the assets that central banks buy directly... hence Japan has now resorted to buying Japanese stocks directly.

The world’s geopolitics is changing. Gone are the fluffy days of Putin shaking hands with George Bush agreeing to keep the world supplied with oil, gone are the days of China helping US firms make profits using their cheap labour, gone are open-for-business days of Europe, gone is the Japanese military neutrality, gone are the Saudis as an unshakeable ally, gone is Israel also a steadfast ally, etc. What is happening is something deeply concerning. Globalisation is turning in on itself and it is each man for himself.

Saudi Arabia is the middle of two 'wars" - religious (from The Kingdom's perspective, Iran is a large Persian country sitting at the easternmost edge of the Middle East, from where it projects power across the Arab world by manipulating and exploiting the region's Shiite communities and other minorities); and geopolitical (it appears to reveal that the kingdom is willing to tolerate Brent prices between USD80-USD90/bbl for a period of 1-2 years in order to achieve two aims: to slow increases in US tight oil production and to pressure other OPEC members to contribute to supply discipline.)

The global economy is like a jetliner that needs all of its engines operational to take off and steer clear of clouds and storms. Unfortunately, as Nouriel Roubini tells The Guardian, only one of its four engines is functioning properly: the Anglosphere (the United States and its close cousin, the United Kingdom). As Roubini continues, the question is whether and for how long the global economy can remain aloft on a single engine. Weakness in the rest of the world implies a stronger dollar, which will invariably weaken US growth. The deeper the slowdown in other countries and the higher the dollar rises, the less the US will be able to decouple from the funk everywhere else, even if domestic demand seems robust. But it's not just the rest of the world that is decoupling from US growth... as the following uncomfortable chart shows, so is a crucial pillar of monetary policy transmission, consumer wealth perception, and economic stability - the US housing market itself.

If you require more evidence that the United States is a dysfunctional society, observe American elections. Election season is slander season. Each party’s attack teams focus on misrepresenting, defaming, and ridiculing the opposing party’s candidates. Attack ads have replaced debates and any discussion of what the issues are, or should be, and how candidates perceive the public’s interest. Each attack team tells lies designed to enrage various voters about the other team’s candidate. Whoever is elected is indebted not to voters but to the special interests that provided the campaign money.

I am out of the office. Indefinitely.

For urgent enquiries, or indeed any enquiries, please contact someone who is not an insane psychopath. For escalation please contact God, though suspect the devil will have custody. [Last line only really worked if I had followed through..]”