Within his 1848 Communist Manifesto, Marx outlined a list of ten short-term demands. These, he thought, would be the precursor to the ideal stateless, classless communist society. Ironically in today’s world, Marx’s demands look pretty much mainstream. That is because nearly every single item on the list has been implemented to varying degrees in the United States. Think that couldn’t be possible in the Land of the Free? Just take a look.
Following dismal data from South Korea (industrial production plunged most since 2008), Japan (household spending missed again and dropped 4.7% YoY), and China (HSBC Manufacturing PMI missed for the 11th month in a row and dropped to 50.2 - barely expansion), and Hong Kong's ongoing protests, Asian stocks are all down hard. Japan's Nikkei 225 is 300 points off Friday's highs (ignoring USDJPY's relative weakness), South Korea's KOSPI is holding at 10-week lows, and Hong Kong's Hang Seng is back under 23,000 at 4-month lows (negative year-to-date), and the China Enterprise Index is down at 2-month lows (negative year-to-date). For now the Shanghai Composite is modestly lower (but up 15% in Q3 following QE-lite) and the broader MSCI Asia-Pac is down around 1% to unchanged for 2014.
Even though it ultimately failed at the ballot box, the recent campaign for Scottish independence should cheer supporters of the numerous secession movements springing up around the globe. The growth of support for secession should cheer all supporters of freedom, as devolving power to smaller units of government is one of the best ways to guarantee peace, property, liberty — and even cheap whiskey!
"Food lines are part of our daily existence," exclaims one member of the Venezuelan public, as people line up for hours outside state-owned supermarkets to buy regulated staple goods, or, as Bloomberg reports, pay three times as much from street hawkers. However, on the other side of the fence in Southern Caracas, President Maduro's "21st Century Socialism" looks a little different as Bloomberg notes 100s of brand new (admittedly Chinese) cars await new owners following the Defense Minister's pledge to purchase 20,000 autos for the armed forces. Simply put, in order to maintain the appearance of utopia, Maduro ensures military personnel don't have to contend with the economic chaos in the rest of the country.
When America's social security, health care, and entitlement systems were first conceived, the country had a very different age distribution. There were roughly 7 active workers per retiree, and the ability to transfer some of that employee wealth to support older citizens was supportable. However, by 2030, just 15 short years away, there will be less than 3. Our national demographic architecture no longer can afford the entitlement system we have. And that's even assuming entitlements were currently sufficiently funded. Simp0ly put, America's demographic situation is a ticking time bomb.
With the USD experiencing its longest stretch of weekly gains since Bretton Woods, it appears, as SocGen notes, that recent currency movements have triggered nostalgia of the pre-crisis world when dollar strength was synonymous with a prosperous global economy. However, given the extreme positioning and potential for policy-maker complacency, SocGen warns the paradox is thus that a strong dollar tantrum could be a more worrying scenario than a Fed tightening tantrum.
One of the biggest concerns about hydraulic fracturing, or fracking, is that the vast amount of wastewater produced by the process of extracting oil and gas from shale rock deep underground is incredibly toxic. Most often, the wastewater is injected into disposal wells deep underground. But a process does exist to convert contaminated water into drinking water that involves running it through wastewater treatment plants and into rivers. Now a new report says that treated wastewater could be fouling drinking water supplies.
The most dangerous thing that any society can do is invalidate young men. When the explosion of youthful male wrath occurs in the USA, it will come along at exactly the same time as all the other benchmarks of order become unmoored — especially the ones in money and politics — which will shatter the faith of the non-young and the non-male, too. The re-set from that will be an economy and a society that few now yammering will recognize.
As we previously noted, only the highest income earners have seen any gains in compensation since the crisis began around 2007 to the current 'recovery' tops. It is perhaps not entirely surprising then that, the total income controlled by the Top 1% is drastically above that of the slave-included times of Ancient Rome and as high as the peak in the roaring 20s. "The greatest irony is that the President is railing against inequality as one of the most important problems of the day, despite the fact that his policies are squeezing the middle class and causing the Fed – with the President’s encouragement – to engage in the radical monetary policy, which is exacerbating inequality. This simple truth cannot be repeated often enough."
There is nothing like the release of secret tape recordings to clarify an inconclusive debate. Actually, what the tapes really show is that the Fed’s latest policy contraption - macro-prudential regulation through a financial stability committee - is just a useless exercise in CYA. Macro-pru is an impossible delusion that should not be taken seriously be sensible adults. It is not, as Janet Yellen insists, a supplementary tool to contain and remediate the unintended consequence - that is, excessive financial speculation - of the Fed’s primary drive to achieve full employment and fill the GDP bathtub to the very brim of its potential. Instead, rampant speculation, excessive leverage, phony liquidity and massive financial instability are the only real result of current Fed policy.
The last few days have been hectic for PIMCO executives. As we already noted, expectations of outflows persist and today's open in CDS markets suggested major concerns among market participants that PIMCO redemptions would force selling through an illiquid market. Sure enough, Bloomberg reports that PIMCO's Total Return Fund ETF was behind the auction of more than $170m of Fannie Mae CMBS on Friday (and more BWICs were seen today). As one trader noted, "you're going to sell your most liquid stuff first." Additionally, PIMCO has seen fit to delete all Bill Gross' tweets... so here are the last six months for the record.
Heavy volume and volatile price action early in stocks and high-yield credit markets subsided later in the day as despite several big stocks in the red, the indices jammed higher in the last hour desparate to get positive (on terrible volume) but failed. Treasury yields fell 3-4bps early on and stuck near the lows of the day (ignoring equity's exuberance). High-yield credit rallied back off early spike wides at 380bps (with desks noting heavy demand for protection) but remains worse than stocks. VIX tested above 17 and crashed back below 15.5. The USD ended the day unchanged (AUD weakness notable) but gold and silver slipped lower with oil (back over $93) and copper up on the day. Camera-on-a-stick smashed over 11% higher to $91.50 as the 41% float short continues to get squeezed out.
China may be doing everything in its power to divert attention from the simple fact that its housing bubble, the largest in the world in terms of both assets comprising it as well as divergence from fair value, has burst. But while there is no clear threshold of what constitutes a bursting bubble when it comes to housing, the latest data out of Soufun, China's largest real-estate website, which said that land sales have dropped a massive 22% to 1.7 trillion Yuan in 2014 so far, is likely as clear an indication as any that Beijing is about to panic. And if that was not enough Bloomberg adds that land sales in 300 cites followed by Soufun fell almost 50% Y/Y to 415.9 billion yuan in 3Q, while residential land sales declined more than 50% to 265.3b yuan in 3Q.
The reason why the first article we wrote on Friday after news hit that PIMCO co-founder was shockingly leaving the firm on Friday, was listing the massive bond fund's biggest holdings, was because it was only a matter of time: it, being of course, the massive redemptions that would follow Gross' departure by people that his 30+ tenure at the bond fund made very rich, and who couldn't care less about a brief central planning-inspired flame out. After all Gross isn't the first person who has lost the plotline due to the Fed's manipulation of every market. So just how bad is it? Not for Gross of course: he has made his billions and is simply doing what he and Icahn do in their age: what they love. No, for Pimco, where the redemptions requests are already flooding in. According to the WSJ, just two days after the Gross announcement (both of which non-workdays), already some $10 billion has been withdrawn. And that is just the beginning.
As rates fell last week, speculators in 2Y Treasury Notes added aggressively to their short positions. Positioning in 2Y Notes is now at its most short since mid-2007 (as 10Y Bond positioning surged to its most long in over a year), and if history is any guide to what happens next, rates are set to tumble.