Archive - Oct 2015 - Story

Billy Sewell began offering health insurance this year to 600 service workers at the Golden Corral restaurants that he owns. He wondered nervously how many would buy it. Adding hundreds of employees to his plan would cost him more than $1 million — a hit he wasn’t sure his low-margin business could afford. His actual costs, though, turned out to be far smaller than he had feared. So far, only two people have signed up. “We offered, and they didn’t take it,” he said.

There are two general schools of thought amongst noted contrarians and libertarians regarding China’s overriding objectives. One school has it that China is very much a part of the One World Government philosophy and their primary goal is to acquire a more powerful seat at the IMF. Having done so, they will settle in and be content to be one of the leading jurisdictions that run the world collectively. The other school suggests that China means to become the most powerful nation in the world - to replace the US in every way as the world’s dominant nation. And that’s the case here. The world’s most powerful (and most oppressive) political/economic power structure has begun to go under the bulldozer. Its replacement will hopefully be a better one.

To the extent the Federal Reserve decides to increase interest rates, it should be apparent that such a move would be inconsistent with their prior actions. In fact, it may likely be a desperate effort to re-load the monetary policy gun as opposed to a signal of domestic economic strength. Not only is this a departure from the past, this would lead many to question the Fed’s motives. It is worth keeping in mind that blind trust and confidence in the Fed has propelled many markets much higher than fundamentals justify. The bottom line is that NIM and the Taylor Rule-adjusted curve are both flashing warning signs of economic recession, while the traditional yield curve signal is waving the all clear flag.

Having previously explained President Obama's recovery in charts, we thought words and pictures would be a better indicator of the dire situation facing so many Americans that get missed by the business media's spotlight. With 9.4 million more Americans below the poverty line than before the crisis, as The LA Times reports, it's disturbing to see so many people so destitute - even if they're working - that they've resorted to selling body fluids to make ends meet. The going rate for plasma donation, which can take a couple of hours, is about $25 or $30. But Octapharma is offering $50 for the first five visits, "when you get that $50, you feel good," one plasma 'seller' said, "I paid my gas bill."

Reuters asks this morning: "why are malls closing if consumption is rising?" Here are some attempts to answer this critical question.

If this is indeed a rerun of the post-LTCM/pre first tech bubble days, then oil is about to soar by 150%

"Red meat, under which the IARC includes beef, lamb and pork, was classified as a 'probable' carcinogen in its group 2A list that also contains glyphosate, the active ingredient in many weedkillers."

Accounting fraud remains at the heart of the fix instituted by Ben Bernanke and the ploy has been copied by authorities throughout the global financial system, including the central banks of China, Japan, and the European Community. That it seemed to work for the past seven years in propping up global finance has given too many people the dangerous conviction that reality is optional in economic relations. The recovery of equity markets from the disturbances of August has apparently convinced the market players that stocks are invincible. Complacency reigns at epic levels. Few are ready for what is coming.

Why is the deal particularly notable? Because Zell has traditionally had a very keen nose about such things as "market peaks": the 74 years old is credited with calling the top of the real-estate market in 2007, when he sold another of his companies, Equity Office Properties Trust, to Blackstone for $23 billion. Soon after, the commercial-property market crashed as prices fell and debt defaults surged when it became apparent that subprime was not contained.

The inherent problem of "eternal bullishness" is the "wilfull blindness" to the underlying data in an effort to chase short-term returns. This leads to the unfortunate problem of being "all-in" on every hand which has a devastating consequence when a mean reverting event occurs. In the end, it does not matter IF you are "bullish" or "bearish." The reality is that both "bulls" and "bears" are owned by the "broken clock" syndrome during the full-market cycle. However, what is grossly important in achieving long-term investment success is not necessarily being "right" during the first half of the cycle, but by not being "wrong" during the second half.

With 1998/99 analogs abounding, we thought it worth looking at a more ominous similarity. The breadth of the US equity market is "narrowing" dramatically; and bad breadth was a big flashing red feature of 1999.

It was only a couple of months ago that a rapidly rising dollar was pushing the global economy closer to a new crisis. It seems unlikely that the conditions that made a rapidly rising dollar a problem in August have all been resolved by October. Those who bought stocks last week in response to hints of more easing from Draghi – and the rate cut in China – may find themselves in the same position as Pavlov’s dogs, wondering why no meal follows the ringing of the bell.