The German election is over and the confrontation over the US debt ceiling has ended, so event risk should be minimal, right? Not so fast, UBS' Mike Schumacher warns - plenty of pitfalls could trip markets. Forward-looking measures of 'risk' are beginning to show some signs of less-than-exuberance reflected in all-time-highs across all US equity indices and if previous episodes of 'low-vol' are any guide, the current complacency is long in the tooth... no matter how 'top-heavy' stocks become; bloated by the flow of heads-bulls-win-tails-bears-lose ambivalence...
So much for the government shutdown - as one of the just released manufacturing ISM respondents so candidly put it, "The government shutdown has not had any impact on our business that I can determine, nor has it impacted any supplier shipments." And speaking of the ISM itself, it naturally rejected everything that the Markit PMI noted, and printed at 56.4, beating expectations of a 55.0 print, the 5th beat in a row, and the highest print since April 2011. Sadly, it was not 66.4 or 76.4 to at least partially "confirm" the Chicago ISM surge. So while virtually all ISM components rose, with exports spiking by 5 points to 57.0, it was the employment index that dipped yet again, from 55.4 to 53.2, the lowest since June, but in the New Normal who needs jobs when one has Schrodinger diffusion indices to confuse everyone on a daily basis. Either way, while stocks did not like yesterday's exploding Chicago PMI and dipped on fears of a December taper, today's 2 years ISM high is one of those good news is good news instances, and ES soars as usual.
Power, or perceived power, is a viciously addictive narcotic. It doesn't matter what political or philosophical background a person hails from, very few have the self discipline or the self awareness necessary to relinquish the trappings of power once they have tasted it. This truth applies to conservatives as much as it applies to liberals. The bottom line is, whether Obamacare is successfully implemented or not, whether the debt ceiling is raised again or not, whether the Left passes every agenda on its list or not, our system is broken and it is going to collapse. There is no way around it. More debt and more fiat printing means stagflationary collapse. Default and austerity means stagflationary collapse. If liberals want to place blame for this conundrum, then they should focus on the people who actually set the original fire – international and central bankers. Constitutional conservatives have been the only people attempting to inform the American public of the facts surrounding our current fiscal crisis.
While the White House spied on Frau Merkel and Obamacare developed into a slow-moving train wreck, while Syria was saved from all-out war by the Russian bell and the Republicrats fought bitterly about the debt ceiling… something monumental happened that went unnoticed by most of the globe. The US quietly surpassed Saudi Arabia as the biggest oil producer in the world. You read that correctly: "The jump in output from shale plays has led to the second biggest oil boom in history," stated Reuters on October 15. "U.S. output, which includes natural gas liquids and biofuels, has swelled 3.2 million barrels per day (bpd) since 2009, the fastest expansion in production over a four-year period since a surge in Saudi Arabia's output from 1970-1974." After the initial moment of awe, pragmatic readers will surely wonder: Then why isn't gasoline dirt-cheap in the US?
Having previously exposed the world to the "nominal stock market cheerleaders," it is clear that Kyle Bass sees things as only having got worse among developed nations. In fact, the following interview shows that he does not fear US losing its credibility since "developed western economies with the largest debt loads are all in the same boat." The discussion expands from the debt ceiling debacle to bonds and stocks, "given the lack of nominal yield in the bond market, all of the new money is going to continue into stocks. The interesting thing is it’s going to make the rich people richer and the middle and lower class won’t be any better off, which is the opposite of what the administration is trying to pull off," adding that being in stocks "is not your choice," thanks to Fed repression and that deficit contraction is all that can stop the Fed now.
“This could turn into a very violent wake-up call for [screen-traded gold]. People talk about ‘fiat currencies’, but we also have ‘fiat gold.’ Volatility is too cheap right now.”
Following the lowest UMich confidence print in 2013, Gallup's economic confidence collapse, and Bloomberg's index of consumer comfort signaling major concerns among rich and poor in this country (in spite of record highs in stocks), today's Conference Board Consumer Confidence data continues to confirm a problem for all those 'hoping' for moar multiple expansion. From 80.2 in September, confidence collapsed to 71.2 (the largest MoM drop in 2 years) to its lowest in six months, and notably below expectations. As we have noted in the past a 10 point drop in confidence has historically led to a 2x multiple compression in stocks (which suggests the Fed will need to un-Taper some more to keep the dream alive). Hope for the future dropped to 7-month lows but what is perhaps most intriguiging, just as with the Bloomberg surveys, we are seeing the wealthiest cohorts confidence plunging (even as stocks soar to new highs). It would appear the Fed has lost its wealth effect inpiration.
If you’re anything like us, you may have reached the conclusions that:
- Our elected officials are charting a course to a fiscal disaster.
- The Fed is repeating past mistakes by setting us up for another bust.
After the drama of the debt ceiling debate and the Fed’s non-tapering surprise, we see no reason to doubt these views. But the latest developments got us thinking, and we have an unusual proposal.
It has been a very interesting week as the Government shutdown/debt ceiling debate debacle moves into the background. The focus has now turned back towards the fundamentals of the market, economic environment and the ongoing Federal Reserve interventions. What is becoming increasingly evident is that market participants are once again potentially throwing "caution to the wind" betting on a belief that the Fed's ongoing Q.E. programs will continue to trump valuations and economics. After all, that has seemingly been the case up to this point. The problem is that no one really knows how this will turn out. However, as we discussed earlier this week, it is likely that we are close to finding out answer. In the meantime, here is our weekly list of "things to ponder this weekend."
Already, the Chinese have stopped accumulating dollars - preferring safer currencies, infrastructure, hard assets and commodities and of course gold. Even a small amount of Chinese selling could lead to substantial dollar weakness and much higher bond yields plummeting the U.S. into another recession.
Following record UMich misses, Gallup's economic confidence collapse, the slump in the conference board's measure of confidence, and Bloomberg's index of consumer comfort signaling major concerns among rich and poor in this country (in spite of record highs in stocks), today's Consumer Confidence data from UMich continues to confirm a problem for all those 'hoping' for moar multiple expansion. Falling for the 3rd month in a row, and missing expectations for the 2nd month in a row, this is the lowest confidence print in 2013. Perhaps even more worrisome for the 'hope and change' crowd is that the 12-month economic outlook has collapsed to its lowest since Nov 2011. It would seem that all that free money flooding our 'markets' has reached peak efficacy in terms of confidence inspiration, and as Citi notes, when this cycle has played out in the past, equity market corrections are often quick to follow...
The risk of a more meaningful reversion is rising. It is unknown, unexpected and unanticipated events that strike the crucial blow that begins the market rout. Unfortunately, due to the increased impact of high frequency and program trading, reversions are likely to occur faster than most can adequately respond to. This is the danger that exists today. Are we in the third phase of a bull market? Most who read this article will immediately say "no." However, those were the utterances made at the peak of every previous bull market cycle. The reality is that, as investors, we should consider the possibility, evaluate the risk and manage accordingly. With the current bull market now stretching into its fifth year; it seems appropriate to review the three very distinct phases of historical bull market cycles. While the current bull market cycle may not be set to end tomorrow; it seems sensible to take a pause to question mainstream beliefs.
Having seen his "unconditional surrender or default" strategy work over the debt ceiling, we wonder what 'ultimatum' President Obama has up his sleeve to get the Immigration Bill passed...
America, as a nation and a culture, is now being held hostage and tortured into submission on a grand scale using economic terror by the elitist establishment which dominates BOTH major political parties. The goal? To push our society to conform completely with the concepts of globalization, bureaucratic micro-management, and greatly reduced living standards. We are being conditioned to accept defeat and failure, and like children, to cry out for a parental authority to save us in our state of helplessness and fear, even if that authority was the cause of our fear from the very beginning. With so many near misses culminating so close together, it may be wise to consider what could happen in the the next three months while we wait for debt debate theater part deux. Like a prisoner in Abu Ghraib, America is trapped, waiting for the next humiliation, the next degradation, or the next session of pain. Are we merely being acclimated to the idea of incessant crisis? Are we learning to become apathetic at the edge of the chasm? Or, are we being driven to madness, mass-madness, by a concert of elitist interrogators seeking our acquiescence? Again, the central purpose of torture is to acquire consent. Not just extorted consent, but voluntary consent. The globalist establishment wants us to beg them to save us from the tortures they create. If we never give them this, they will never win.
Washington, DC, Wall Street, and central bankers around the world rejoiced this week as Congress came to an agreement to end the government shutdown and lift the debt ceiling. The latest spending-and-debt deal was negotiated by Congressional leaders behind closed doors, and was rushed through Congress before most members had time to read it. Now that the bill is passed, we can see that it is a victory for the political class and special interests, but a defeat for the American people.