A great many will rue the day when they bought into: “Pigs can fly,” “The markets are at these levels based on sound fundamentals,” “The Fed’s got their back,” and “Ebola is contained.” It is astounding just how far behind the curve many are finding themselves. Suddenly, almost everyone we meet is either doe-eyed, or worse, portraying signs of a deer stuck in the headlights. Today, everything is changing because the great masses whom many relate to as “the herd mentality” is now showing signs of great nervousness. And once this group gets spooked, it's over.
If central banks have learned anything since 2008, it's that waiting around for the panic to deepen is not a winning strategy. Put yourself in their shoes. Isn't this what you would do, given the dearth of alternatives and the very real risks of implosion? Anyone in their position with the tools at hand would not have any other real option other than to buy stocks in whatever quantity is needed to reverse the selling and blow the shorts out of the water. If $1 trillion doesn't do the job, make it $3 trillion, or $5 trillion. At this point, it doesn't really matter, does it?
Did the sharp sell-off in crude oil trigger the meltdown in stocks? While there are plenty of potential reasons for the stock market to drop - stretched valuations, the slowdown in Germany, Japan and China, etc. - it is more than possible that the recent sell-off in crude oil might have served as a trigger. Crucially, as we explained in detail here and here, if the manipulation of prices of crude oil lower by the Saudis is indeed a US-friendly anti-Russian move, how much equity market pain (and thus created wealth) is America willing to take for the use of "The Oil Weapon"?
We warned a week ago of the various possibilities surrounding an Ebola outbreak in America, and today we get some degree of confirmation of a medical-based martial-law coming to the US. Governor Dan Malloy has declared a Public Health Emergency in Connecticut, authorizing the "isolation of any individual reasonably believed to have been exposed to the Ebola virus." Simply put, as we noted previously, the State of Public Health Emergency allows bureaucrats to detain and force-vaccinate people without due process - despite not one single case being found in CT. If there is a major Ebola pandemic in America, all of the liberties and the freedoms that you currently enjoy would be gone. The state of public health emergency will remain in effect indefinitely until lifted by the governor.
It's sad to say with such finality, but a universal fact of existence is that most of the people you meet in this life are fundamentally and functionally ignorant. Entire nations have fallen throughout history because of this terrible weakness... By extension, such ignorance is not just an inherent disease but also an easily exploitable disease. The disease of ignorance leaves us vulnerable to many other plagues, including literal plagues like the Ebola virus. When we take the establishment at its word concerning the threat of Ebola outbreak, we make ourselves vulnerable. When people assume that the worst could never happen to them, history shows us that it inevitably does.
Physical gold is being accumulated and used in exchanges but very discretely as of now. The geopolitical and economic environment in the last few months was in my view the calm before the storm. Both the economic and political environments are uncertain and will surprise the complacent markets.
This week has seen some market volatility (see VIX Chart) reminiscent of the functioning market from days of old. The markets are spooked, bad news is overtaking good news and bearish views are becoming vogue. We are seeing a titanic battle taking place between the various bull and bear camps and they are starting to unleash some serious firepower.
Foxconn workers are striking again - this time in Chongqing. But you have to look at the map to see why this is an event of extraordinary significance. In a word, these strikes mean that the rice paddies of China have been nearly drained of cheap, docile labor.
At the end of the day, the Fed with its misguided theories have demolished capitalism: the single most powerful form of wealth generation in the history of mankind. All the Fed has really accomplished is leverage the entire financial by an even greater amount… which has set the stage for a collapse that will make 2008 look like a picnic.
Another day, another demand by "activist" (which as we have explained patiently before simply means someone who demands companies use moar debt to fund buybacks and/or dividends) Carl Icahn for Apple to buyback it shares. Uncle Carl's bottom line: AAPL stock would be worth a ridiculous $203 (or a $1.2 trillion market cap), if only the board were to "repurchase a lot more" stock "and sooner." Icahn's insight in a nutshell: "the more shares repurchased now, the more each remaining shareholder will benefit from that earnings growth." That's great, but we don't get why waste his precious repeating what he has said so many times before: instead Icahn should just pitch the Fed to monetize AAPL stock in QE 5. Value added Q.E. and well D.
What can popular television programs tell us about the zeitgeist (spirit of the age) of our culture and economy? It’s an interesting question, as all mass media both responds to and shapes our interpretations and explanations of changing times. It’s also an important question, as mass media trends crystallize and express new ways of understanding our era. Those who shape our interpretation of events also shape our responses. This of course is the goal of propaganda: Shape the interpretation, and the response predictably follows.
If the top 1/100th of 1% crowding airports with their private jets isn't afraid of impoverished, disenchanted debt-serfs with pitchforks, they should be.
The one market seemingly everyone "knows" is a bubble is the treasury market. That is the market that just made new low yields on the 30 year bond for the year. GTAT, which is the first true "jump to default" I have ever seen looks exactly like a "bubble" popping, is spurring the rethinking of where the risk is in high yield.
The good thing about Germany’s bad, make that awful, numbers is that they will raise the voices of euroskeptics across the country. If there is to be a change in view or politics from Angela Merkel and her people, it’s not going to be what the rest of Europe wants, a softer stance on Mario Draghi’s ABS junk paper purchases. Quite the opposite: Germans will increase their calls for Deutschland first, and Merkel can no longer ignore them.