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.
- Top China Banks Triple Debt Write-Offs as Defaults Loom (BBG)
- PBOC suspends open market operations again (Global Times)
- Eurozone bank shares fall after ECB outlines health check plan (FT)
- O-Care falling behind (The Hill)
- Key House Republican presses tech companies on Obamacare glitches (Reuters)
- J.P. Morgan Faces Another Potential Huge Payouta (WSJ)
- Yankees Among 10 MLB Teams Valued at More Than $1 Billion (BBG)
- Free our reporter, begs newspaper as China cracks down on journalists (Reuters)
- Peugeot Reviews Cost-Saving Alliance With GM (WSJ)
Just one day after the deal in Congress was reached, the U.S. national debt rose by an astounding 328 billion dollars. In the blink of an eye we shattered the 17 trillion dollar mark with no end in sight. We are stealing about $100,000,000 from our children and our grandchildren every single hour of every single day. This goes on 24 hours a day, month after month, year after year without any interruption. The U.S. national debt is now 37 times larger than it was 40 years ago, and we are on pace to accumulate more new debt under the 8 years of the Obama administration than we did under all of the other presidents in U.S. history combined. So what will happen when the rest of the world decides that they don't need to use our dollars or buy our debt any longer? At that point the consequences of decades of incredibly foolish decisions will result in an avalanche of economic pain that the American people are not prepared for.
A mere 24 hours before the US was going to run out of money and default on its obligations (in what Jack Lew described as a "catastrophe"), Grant Williams notes the S&P 500 was trading exactly 2.30% from its all-time high. Does that sound like anybody was worried about financial Armageddon? Nope, but as Williams detail sin his latest letter, the danger was very real, as a default by the US on its debt obligations would have gone to the very heart of the "plumbing" that underlies financial markets and caused havoc in the repo market and all kinds of problems with collateral... The key clue passed most people by a week ago; but it came from, of all places, Hong Kong...
There are no simple solutions to the issues that currently plague the U.S. and, unfortunately, the latest debt ceiling debate/government shutdown did nothing to institute any reforms whatsoever. The "kick-the-can" solutions by fiscal policy makers continues to show little understanding about the drivers of real economic growth, the need to reduce governmental dependency or a real "wealth effect" that impacts more than just 1% of the population.
It is rare that investors are given a road map. It is rarer still that the vast majority of those who get it are unable to understand the clear signs and directions it contains. When this happens the few who can actually read the map find themselves in an enviable position. Such is currently the case with gold and gold-related investments.
Yes, the United States dodged another bullet with a last-minute deal on the debt ceiling. But, with 90 days left to bridge the ideological and partisan divide before another crisis erupts, the fuse on America’s debt bomb is getting shorter and shorter. As a dysfunctional US government peers into the abyss, China – America’s largest foreign creditor – has much at stake. For more than 20 years, this mutually beneficial codependency has served both countries well in compensating for their inherent saving imbalances while satisfying their respective growth agendas. But here the past should not be viewed as prologue. A seismic shift is at hand, and America’s recent fiscal follies may well be the tipping point. The days of its open-ended buying of Treasuries will soon come to an end.
If Obama’s budget projections prove accurate, the National Debt will top $20 trillion in 2016, the final year of his second term. That would mean the National Debt increased by 87%, or $9.34 trillion, during his two terms.
Last week, the main area of focus was the political situation in the US where Democrats and Republicans finally agreed upon a short term fix to reopen the government and extend the debt ceiling. The conclusion of this saw equity markets rally to all time highs in Europe and the US, with the USD continuing to slide as markets turn their attention to the Fed’s QE programme and push back expectations of when the central bank will begin to pull back on asset purchases. With the government now reopen, attention will turn to the numerous data releases that were delayed but will now take place over the next two weeks, including the jobs report which is due on Tuesday. The release of this report will once again be used to help predict when the Fed will begin to taper QE however, recent comments from Fed members have suggested that October is likely to be too soon trim bond buying due to the lack of key macroeconomic data and the unknown economic impact as a result of the government closing for 16 days.