Fisher

For the 10th month in a row, Dallas Fed's Manufacturing Outlook printed a deteriorating negative signal. At -12.7 (against expectations of a modest rise from September's -9.5 to -6.5) it appears ex-Dallas Fed head Fisher was dead wrong as recession warnings loom large. Below the already ugly headline, the components were a disaster. While production and employment rose (somehow), New orders plunged, Prices Received continued to fall, and Average employee workweek fell for the 9thg time in the last 10 months. Perhaps worst was the drop in hope amid falling workweek and wage growth expectations.

In what is truly historic flip flop, just a month after Consumer Reports said the Tesla Model S is the best car it has ever tested, the agency has not only yanked its original review, but has come out with what is clearly a hitjob sponsored by another highest bidder, aimed squarely at Elon Musk's overpriced science experiment.

Investors are too complacent (the Minsky-Moment).  Too many are still trying to profit from the Fed subsidy of past stimulus. Investors remain loaded in risk assets, incentivized by the need to beat peers and benchmarks and comforted into complacency by the Fed ‘put’. The true level of risk is being ignored. The pervasive mentality of seeking maximum risk has become a terrible risk/reward trade for two main reasons...

Michael Wang: too Asian and too perfect for the Ivy League schools. This is a typical example of modern-day socialism’s drive to allegedly “equalize opportunity”, a heading under which the incentive to make an effort to actually accomplish something in life is slowly but surely deadened among those showing the best abilities. Over time, it leads to decay in the population’s morals and intelligence, until you end up with a nation best compared to a ship of fools.

Much of the political thinking about violence in the United States comes from unfavorable comparisons between the United States and a series of cherry-picked countries with lower murder rates and with fewer guns per capita. This is, in turn, supposed to fill Americans with a sense of shame and illustrate that the United States should be regarded as some sort of pariah nation because of its murder rate. However, politically, historically, and demographically, the US has little in common with these nations.

News That Matters

Long gone is the illusion of: an elected body by the citizenry. Today, it’s become demonstrably self-evident the economy is run by an elected body – by the elected. And the consequences of this change is only now beginning to openly reverberate both in amplitude and frequency with every passing day.

Overnight we got confirmation that Glencore has indeed become a systemic risk from a regulatory standpoint after the FT reported that the Bank of England has asked British financial institutions to reveal their full exposure to commodity traders and falling prices of raw materials amid concerns over the impact of the oil and metals slump. Or, in other words, their exposure to Glencore, Trafigura, Vitol, Gunvor and Mecuria.

Mortgage applications rose 25.5% week-over-week - the 2nd largest surge since 2009 - to the highest level (for this time of year) since 2012. Both refis and purchases soared, and exuberance immediatoley extrapolated this surge as 'proving' the housing recovery is healthy. However, as MBA admits, "many applications were filed prior to the TILA-RESPA regulatory change," strongly suggesting this is anything but sustainable.

• After Rough Quarter, Investors Buckle Up (WSJ)
• From heroes to bystanders? Central banks' growth challenge (Reuters)
• Russian Airstrike in Syria Targeted CIA-Backed Rebels, U.S. Officials Say (WSJ)
• Kremlin says Syria air strikes target list of groups, not just Islamic State (Reuters)
• That’s information warfare? Russia accused of killing civilians in Syria (RT)
• Euro zone factory growth eases in August despite modest price rises (Reuters)
• How Glencore's Crazy Month Makes Greek Banks Look Tame (BBG)

August's regional Fed survey collapse was unanimous... Dallas, Richmond, New York, Philly, Chicago, and even Kansas City all flashing recessionary warnings. And so now we begin to see September's data and Dallas Fed prints -9.5 - the 9th negative (contractionary) print in a row. While a small beat (against -10 exp.) and rise from August's -15.8, under the surfacxe the data is a disaster with wages lower, employees contracting drastically, and average workweek collapsing. Having noted that "the quantitative easing hangover is starting" in August, it appears - judging by the biggest plunge in Capex in 5 years.

The Fed remains in a box of its own making. We are beginning to doubt whether central bank will ever be hike rates again voluntarily. What is however eventually highly likely to happen is that the markets will force the Fed to act – or as Bill Fleckenstein puts it, “the bond market may take the printing press away from them”.

The real risk for the Federal Reserve is keeping interest rates at zero and the deflationary feedback from the collapse in commodity prices, and the Chinese economy trips the U.S. into a recession. Given that "QE" programs have no real effect on boosting economic growth, the Fed would be left with virtually no "effective" monetary policy tools with which to stabilize the economy. For the Fed, this is the worse possible outcome.

global bank credit looks like it is already contracting in key markets, such as China, in which case global fundamentals are definitely deteriorating. This being the case, it will take increasing amounts of newly-issued money from the central banks to perpetuate the illusion that markets are rising, and that the economy is still growing, with or without state-directed buying of equities.

This past week has seen a continuation of market volatility unlike anything witnessed over the last several years. Of course, this volatility all coincides at a time where market participants are struggling with a global economic slowdown, pressures from China, collapsing oil prices, a lack of liquidity from the Federal Reserve and the threat of rising interest rates.  It is a brew of ingredients that would have already likely toppled previous bull markets, and it is only by a hairsbreadth the current one continues to breathe.