Presented with little comment aside to note that Google (3rd largest market cap in the S&P 500) is now up 13% on the day... (at $1007.40)
- Republican Civil War Erupts: Business Groups v. Tea Party (BBG)
- Budget fight leaves Boehner 'damaged' but still standing (Reuters)
- Madoff Was Like a God, Wizard of Oz, Lawyers Tell Jury (BBG) - just like Bernanke
- Republicans press U.S. officials over Obamacare snags (Reuters)
- Brilliant: Fed Unlikely to Trim Bond Buying in October (Hilsenrath)
- More brilliant: Fed could taper as early as December (FT)
- Russia Roofing Billionaires Seen Among Country’s Youngest (BBG)
- Ford's Mulally won't dismiss Boeing, Microsoft speculation (Reuters)
- China reverses first-half slowdown (FT)
- NY Fed’s Fired Goldman Examiner Makes Weird Case (BBG)
While the US economic data reporting machinery slowly starts churning again following the "reactivation" of government, last night it was China 's turn to report a slew of goalseeked economic items. Q3 GDP (+7.8% yoy), Industrial Production (+10.2% yoy), Fixed Asset Investments (+20.2% YTD yoy) and Retail sales (+13.3% yoy) for September all came in broadly in line with market consensus. The economy grew at a faster pace on a sequential basis with Q3 growth being 0.3ppts higher than Q2. Nonetheless, many observers forecast yoy Q4 GDP growth to decline due to the end of inventory restocking and the fade out of a major credit stimulus in the prior quarter, even as total Chinese debt continues to push ever higher into bubble territory.Speaking of China, however, it is worth noting that overnight the Chinese Yuan rose to the highest level against the dollar in 20 years. This happens as the USD tumbles to nearly a year low, which incidentally is the theme of the overnight session: the ongoing dollar poundage is reverberating across the globe, and the resulting unleashing of global funding carry trades looks set to take the S&P (and everything else) to fresh record highs on the back of even more generous Fed Kool Aid expectations.
Reflecting on the collapse of the USD, the surge in gold, the Chinese ratings agency downgrade, and the groundhog-day-like world in which the US government (and markets) live, DoubleLine's Jeff Gundlach warns that "America's credibility is slowly eroding." In his typical manner, Gundlach rapidly and efficiently covers a lot of ground in these brief clips; from the growing skepticism of the rest of the world towards the US' full faith and credit, to no end in sight for QE and reignition of bond inflows under an even more interventionist Yellen, to his views on Tesla, Google, and Apple.
- Congress Vote Ends Impasse to Be Revisited in January (BBG); Congress Passes Debt, Budget Deal (WSJ)
- House GOP extracts no concessions (Politico)
- Washington becomes the biggest risk to the U.S. economy (Reuters)
- Debt Deal Seen Boosting U.S. Consumers as Holidays Approach (BBG) - only thing missing: disposable income
- Federal Employees Head Back to Work (WSJ)
- Regulator Suggested Shift for Dimon at J.P. Morgan Unit (WSJ)
- Twitter hires Google ad exec ahead of IPO (CNET)
- Teens can now post publicly, but posts are friends-only by default (WaPo)
- Germany Moves to Finalize Coalition Deal (WSJ)
- Draghi Turns Judge on EU Banks as ECB Studies Accounts (BBG)
- UK nuclear deal with China a ‘new dawn’ (FT)
If there is anything the market has shown in the past 16 days of government shutdown, which is set to reopen this morning in grandiose fashion following last night's 10 pm'th hour vote in the House, is that it no longer needs Washington not only to function but to ramp higher. All it needs is the Fed, which in turn needs an unlimited debt issuance capacity by the US Treasury which it can monetize indefinitely, which is why the debt ceiling was always the far more pressing issue. In other words, the good news is that the can has been kicked, and now the government workers (who will need about a week to get up to speed), can resume releasing various government data showing just how much 5 years of now-open ended QE have impaired the US economy, and why as a result, even more years of unlimited QE are in stock (because in a Keynesian world, what caused the problem is obviously what will fix it). The bad news: the whole charade will be repeated in three months. More importantly, with futures no longer having the hopium bogey on the horizon, namely the always last minute debt deal, they have finally sold off on the back of a weaker USD. It is unclear if the reason for this has more to do with climbing the wall of shorters which is now gone at least until February when the soap opera returns, or what for now, has been an absolutely abysmal Q3 earnings season. Luckily, in a centrally-planned world, plunging stocks is bullish for stocks, as it means even more Fed intervention, and so on ad inf.
Accute Wiretap Ear spotted...
With a stunning 41% of global wealth in the hands of a mere 0.7% of the world's population, the lower- and middle-class continue to fight amongst themselves for the scraps to maintain a decent standard of living. In the US, with the home-equity ATM now closed (and maybe EBT interrupted), those struggling to make ends meet are turning to the only "asset" they have left that is unencumbered (for now) - their body parts. As Bloomberg reports, since the beginning of 2011, 'hair,' 'eggs,' or 'kidney' have been among the top four autofill results for the Google search query, 'I want to sell my...;' and "the fact that people even explore it indicates that there are still a lot of people worried about their financial outlook," as hair, breast milk and eggs are doubling as ATMs for more and more cash-strapped Americans.
- Headline of the day: U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults (BBG)
- As Senate wrestles over debt ceiling, Obama stays out of sight (Reuters)
- The "Truckers Ride for the Constitution" that threatened to gum up traffic in the capital was a dud as of Friday afternoon (WSJ)
- China New Yuan Loans Top Estimates as Money-Supply Growth Slows (BBG)
- Vegetable prices fuel Chinese inflation (FT)
- China Slowing Power Use Growth Points To Weaker Output Data (MNI)
- London Wealthy Leave for Country Life as Prices Rise (BBG)
- Gulf oil production hits record (FT)
- Every year like clockwork, analysts start out bizarrely optimistic about future results, then “walk down” their forecasts (WSJ)
- Weak Exports Show Limits of China’s Growth Model (WSJ)
In a world devoid for the past two weeks and certainly for foreseeable future of most US economic data (this week we get no CPI, Industrial Production and New Home Sales among others), markets are now reliant on China for an indication of how the economy is doing, which is why this weekend's weaker than expected Chinese exports (ignoring the fact that China trade data is largely made up) and higher than expected consumer price inflation (driven by higher vegetable prices), even as new yuan loans soared to CNY787 billion, well above the CNY675 billion estimate despite broader M2 slowing from 14.7% in August to 14.2% in September, means the Chinese economy is once again in a vice and following the summer's liquidity driven boost, is set to roll over. Which in turn means that once again the PBOC is flying blind: unable to inject more liquidity without risking broader inflation, while most indicators are already rolling over. In short, ugly and certainly rolling over Chinese economic indicators for the market to mull over on Columbus day, even though all this will be promptly forgotten once the Washington debt ceiling song and dance resumes and the now traditional 10:30 am surge grips the algotrons as the latest set of "imminent deal" rumors is unleashed.
Time is nearly up for Ben Bernanke, the chairman of the Federal Reserve who supposedly applied his scholarly knowledge of the Great Depression to steer the U.S. to safety after the financial crisis. In truth, Bernanke navigated a monetarist course that favored intensive intervention, following in the footsteps of many mainstream economists who grossly misunderstood the lessons of the Crash of 1929 and the ensuing malaise. That lesson is that when corrective crashes occur, intervention is far from the cure — it is the cause.
Over four years ago when we discussed the high frequency predator traders feasting on the signals of others, few believed it possible (and fewer still comprehended it). Today there is another potential disruptor in US equity market microstructure, the transformation of noise to signal from the overwhelming drivel of a Twitter stream. Macro signals (the hashcrash in April when AP's account was hacked and this week's Israeli military tweet misunderstanding) have had dramatic effects on the market but individual stock trading success remains elusive. “You have to be happy with a lot of noise in your data,” one advocate notes, but, as the FT notes, a recent PhD study concluded, "The proponents of this idea really do exaggerate it... I’m not saying there’s nothing here, but I’m not saying you can print money either."
- Dot Com part deux: Investors are showing increasing hunger for initial public offerings of unprofitable technology companies (WSJ)
- Poll Finds GOP Blamed More for Shutdown (WSJ)
- House, Senate Republicans Offer Competing Plans on Debt-Limit, Government Shutdown (WAPO)
- Obama, Republicans aim to end crisis after meeting, hurdles remain (Reuters)
- US Rethinks How to Release Sensitive Economic Data (WSJ)
- Chinese East Oil Fuels Fresh China-US Tensions (WSJ)
- ECB Agrees on Swap Line With PBOC as Trade Increases (BBG)
- China September Auto Sales Surge 21% on Japanese Rebound (BBG)
- JPMorgan Taps Taxpayer-Backed Banks for Basel Rules (BBG)
Even as Washington stares into a fiscal abyss of its own construction, there is one bright spot: the ongoing global popularity of the $100 bill. The U.S. Treasury/Federal Reserve launched their latest version of the venerable C-Note just this week, printing $350 billion worth over the last 12 months to meet anticipated robust worldwide demand. Given that $100 bills last about 15 years in circulation, ConvergEx's Nick Colas notes that these record amounts seem to indicate very strong worldwide demand for hard currency rather just replacing old stock. In the US, by contrast, the ‘Cashless economy’ is coming hard and fast.
There is a profound disconnect between the Higher Education cartel and the economy and what higher education should cost in a world where information, instruction, and knowledge have fallen to the cost of bandwidth; i.e., near zero. What was once costly and scarce (knowledge and instruction) is now nearly free and abundant, readily available on any digital device anywhere in the world with a connection to the Web. There is no need to concentrate students in a campus with a library; every web-connected digital device is a library and university combined. The Higher Education cartel is perfectly happy to encourage degree inflation (at enormous expense, of course), but this zeal for issuing student-loan-funded diplomas fails to address two structural disparities: the one between the skills needed to prosper in the emerging economy and the skills colleges are providing students, and the widening income/wealth/education gap between the wealthy and the non-wealthy.