Archive - Sep 2015 - Story

This long-term erosion of earned income and household finances does not enable "growth" that is based on rising spending and borrowing. If these are no longer possible, the status quo has no Plan B.

After an almost incessant rise since January, Existing Home Sales in August plunged 4.8% (the most since January and dramatically worse than the -1.65 drop expected). This is the 3rd biggest monthly collapse since the financial crisis. While the Northeast saw no change, The West (down 7.8% MoM) and South (down 6.6% MoM) saw the biggest plunges in sales as median home prices fell for the 2nd month in a row. It appears the one brightspot in the economy (according to mainstream media) has burned out as affordability and excitability come to a turning point.

The Saudis must alter course, seek a consensus on prices and volumes with their fellow OPEC members, coordinate with Russia, and reduce output from 2015’s average (approx. 10.5 mmbbl/d) to signal their commitment. Why? Crude prices staying lower for longer will rapidly devastate the Saudi economy.

The chart below shows the annual change in 12-month forward S&P 500 EPS expectations. This series is based on forward consensus expectations and therefore excludes many of the write-downs and exceptional items that are currently pushing down actual reported profits. It is more akin to operational profits and has never been this negative outside of a recession!

"The market is now observing itself from another angle as an observer of the observer of the observers."

Having no cost to money is the economic equivalent of no intelligent laws in society. The equivalent of using our money but having a baseline of zero for the benefit produced with that money. The results are what you would expect, the wild west, One might say, Financial Anarchy.

In the week following the Fed's admission it is not only market-driven but now has a 4th mandate, which is to respond to China's hard landing on a day-to-day basis, US macro events mecrifully slow down to give everyone a chance to digest what the Fed just did. Here are the highlights.

· Comments from Fed speakers could see additional focus this week given the dovish rhetoric seen at last week’s press conference, with Yellen, Lockhart, Bullard and George all scheduled to speak.

· Outside of America, Europe sees the German IFO survey release, while markets will also look towards the release of China’s Caixin PMI.

"In such a downside scenario there could be pressure on the central bank to provide about 10-12% of GDP in reserves to the market to offset outflows as well as hedging demand (which could be met by intervening in forward markets). This is roughly USD1.0-1.2trn – that would be about 30% of its current reserve portfolio."

• Fed is out so...BOJ brainstorms stimulus overhaul as options dwindle (Reuters)
• And... Yellen Pause Ups Pressure on Draghi as Global Pessimism Mounts (BBG)
• But... Eurozone Nears Limits of What Monetary Policy Can Do (WSJ)
• Global shares struggle on global growth concerns (Reuters)
• VW's Emissions Cheating Found by Curious Clean-Air Group (BBG)
• David Cameron allegedly fucked a dead pig's head (Mirror)

After sliding early in Sunday pre-market trade, overnight US equity futures managed to rebound on the now traditional low-volume levitation from a low of 1938 to just over 1950 at last check, ignoring the biggest single-name blowup story this morning which is the 23% collapse in Volkswagen shares, and instead have piggybacked on what we said was the last Hail Mary for the market: the hope of more QE from either the ECB or the BOJ. Tonight, it was the latter and while Japan's market are closed until Thursday for public holidays, its currency which is the world's preferred carry trade and the primary driver alongside VIX manipulation of the S&P500, has jumped from a low of just over 119 on Friday morning to a high of 120.4, pushing the entire US stock market with it.

While the rest of the levered-beta 2 and 20 chasers formerly known as "hedge funds" recently accused risk parity of blowing up their August returns (September is not shaping up much better) the biggest risk-parity fund in the world also found a scapegoat: the global economy, which according to Dalio, is the reason for All Weather's dramatic August slump. Bridgewater's message is simple: absent far more easing, what the charts above signal is that the US economy is about to slam head-on into an economic recession.

As of today you really can pay your taxes, your credit cards, your mortgage, shop at Costco, and buy your groceries without so much as a bank account while using sound money.

Main Street "doing God's work" for Wall Street...

Gold and silver are good assets to hold to insure the preservation of EXCESS wealth but there are other assets that are even more valuable long-term.