Gross Domestic Product

The Silent Generation (people born between 1928-’45), finds itself in a 'sweet spot' but refuses to spend enough. America has a problem: the ' by far' richest group in the US doesn’t spend, while those who would like to spend, for instance to build a home and a family, are too poor to do it.

Simply put, the dollar's rise could destabilize the entire global financial system. To understand why this is so, we have to start with the source of the risk: the world's central banks.

The Keynesian notions of “potential GDP” and “aggregate demand” have no basis in the real world. They are revealed doctrine. They are the religion of the state’s economic policy apparatus. Its bad enough that this destructive economic religion leads to the farcical forecasting games evident in the EC’s chronic updates and slow-walks of the GDP numbers down. The evil, however, is that the Keynesian apparatchiks will not desist in their destructive money printing and borrowing until they have suffocated free market capitalism entirely, and have monetized so much public debt that the financial system simply implodes.

Based on the ridiculous, seasonally-adjusted data released day after day by the various US "Departments of Truth", also known as the BLS, the Census, the Dept of Commerce, UMichigan, ADP, the Conference Board and so on, the US economy is so strong and consumer confidence is so resurgent, America is on the verge of a second golden age. Sadly, for Obama, and last night's epic rout for Democrats, it was all a lie - a lie perpetuated by a manipulated S&P500 which hit daily record highs on unprecedented central bank liquidity injections which have now terminally disconnected the "markets" from the economy, and the welfare of the vast majority of the common "folk" - and said "folk" saw right through it.

"In announcing that it will boost purchases of government bonds to a record annual pace of $709 billion, the central bank has just added further fuel to the most obvious bond bubble in modern history -- and helped create a fresh one on stocks. Once the laws of finance, and gravity, reassert themselves, Japan's debt market could crash in ways that make the 2008 collapse of Lehman Brothers look like a warm-up. Worse, because Japan's interest-rate environment is so warped, investors won't have the usual warning signs of market distress. Even before Friday's bond-buying move, Japan had lost its last honest tool of price discovery. When a nation that needs 16 digits in yen terms to express its national debt (it reached 1,000,000,000,000,000 yen in August 2013) sees benchmark yields falling, you've entered the financial Twilight Zone. Good luck fairly pricing corporate, asset-backed or mortgage-backed securities."

what is strange is that while traditionally such a major downward growth revision would have been sufficient to send futures soaring - why: because in a world where only central banks are left, it means more central bank global bailouts of course - this time the adverse update actually had the impact of sending futures to their lows of the session, granted just a few tiny points since the market is clearly disconnected with even the most pro forma, non-GAAP version of reality, but the reaction direction was clearly unexpected. Perhaps this is explained by the ongoing devastation in both WTI and Brent, which were trading at $76.70 and $82.50 at last check, both down almost 3% as the plan to use Saudi Arabia to crush Russia has instead backfired and the Saudi princes are now openly looking at destroying the US shale infrastructure, as we forecast in the worst, for Obama, scenario.

As faces are filled with chocolate on All Hallow's Eve, we thought this evening's reading list should maintain the focus of "scary" ponderances now that the Federal Reserve has ended their latest monetary iterations.

• "Soaring consumer confidence" - How the Economy Is Stoking Voter Anger at Incumbent Governors (WSJ)
• Euro zone deflation worries shield German Bunds from upbeat Fed (Reuters)
• Greece’s Euro Dilemma Is Back as Minister Sees Volatility (BBG)
• Ukraine gas supplies in doubt as Russia seeks EU payment deal (Reuters)
• Sterling Lads Chats Show FX Traders Matching Fix Orders (BBG)
• NATO Tracks Large-Scale Russia Air Activity in Europe (WSJ)
• U.K. SFO Charges Ex-Tullett Prebon Broker in Libor-Rigging Probe (BBG)
• Jerusalem on edge after shooting of rabbi (FT)
• Israeli police kill Palestinian suspected of shooting far-right activist (Reuters)
• Samsung seeks smartphone revamp to arrest profit slide (Reuters)

A prelude for the monetary madness...

With no mention of the current turmoil in markets - or suggestion of QE99 - Janet Yellen's speech this morning on "Inequality and Opportunity" in America explains how the poor can get rich. After admitting that widening inequality resumed in the recovery (and "greatly concerns" her), as the stock market rebounded (driven by Fed's free money) and cost-conscious share buying-back companies defer wage growth as the healing of the labor market has been slow; she turns her attention to how the poor can beat the vicious cycle. Rather stunningly, she notes the 4 sources of income opportunity in America: The first two are widely recognized as important sources of opportunity: resources available for children and affordable higher education (so more student debt and servitude). The second two may come as more of a surprise: business ownership and inheritances. As she concludes, "this is how individuals and their families can improve their economic circumstances."

Expecting the state to truly reform the nation's engines of financialization is like asking the cocaine addict married to the wealthy dealer to divorce the dealer.

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?

Facing up to the pressures of responsibility as a member of the European Union - having been told their treaty-busting budget plan was unacceptable - it seems France is resorting to the worst case scenario - cut spending! As Bloomberg reports, the glory days of France’s welfare model may be behind it, as France, which hasn't had a balanced budget since 1974, admits "for 40 years we have lived beyond our means," but French PM Valls is "convinced [France] can make up for lost time." His plan - streamlining unemployment benefits, cutting bonuses for newborns, and pegging family allowances to household income (all of which amount to a de facto re-writing of France’s welfare rules), are being spun positively: "It's not the end of a generous system,” government spokesman Stephane Le Foll said yesterday. "It's the end of spending that wasn't useful - and that's in order to preserve a system that is a costly one." We wonder how much those 'slightly used' guillotines are going for on eBay now?

• Five U.S. airports to screen for fever (Reuters)
• Danger, central banks trading with each other: Bipolar U.S. Stocks See Biggest Mood Swing in Three Years  (BBG)
• Draghi Policies Blunted in Berlin as German Protests Grow (BBG)
• White policeman kills black teen in St Louis, triggering fresh protests (Reuters)
• Au Revoir to France’s Welfare Model as Socialists Cut Spending (BBG)
• Here comes Roberto Cavalski (Reuters)
• There are 49 U.S. venture-capital-backed companies with a valuation of $1 billion or more—the highest number on record (WSJ)
• Pressure mounts on Hong Kong leader over payout amid crisis (Reuters)