Market Share

While the infamous 'Gundlach' trade has done remarkably well since inception, our view on NatGas has become less vociferously bullish recently as the more constructive factors such as an under-appreciation of declining production and rising utility demand. While their remains upside potential to gas prices over the next 18 to 24 months, we tend to agree with Credit Suisse as they note five reasons why a near-term pause in pricing is likely. With unconventional supply more resilient than many had expected - covering the fall in conventional supply and absent an extremely cold winter (which NOAA is not expecting), a range-bound NatGas pricing market seems the new normal (for now).

The squid speaks

"The consensus view was that QE3 was going to send the stock market to the moon. Yet the peak level on the S&P 500 was 1,465 on September 14th, the day after the FOMC meeting. The consensus view was that the lagging hedge funds were going to be forced to play some major catch-up and take the stock market to the moon too. Surveys show that the hedge funds have already made this adjustment...Q3 EPS estimates are still coming down and now stand at -3% YoY from -2% at the start of October....this is the first time the Fed embarked on a nonconventional easing initiative with the market overbought and with profits and earning expectations on a discernible downtrend. Not only that, but the fact the pace of U.S. economic activity is still running below a 2% annual rate, which is less than half of what is normal at this stage of the business cycle with the massive amount of government stimulus, is truly remarkable. Keep an eye on the debt ceiling being re-tested — the cap is $16.394 trillion and we are now at $16.119 trillion. This is likely to make the headlines again before year-end — the rating agencies may not be taking off much time for a Christmas break."

• OECD: Japan Public Debt in 'Uncharted Territory' (WSJ)
• Germany holds firm on Greece as IMF pressure mounts (Reuters)
• Schäuble and Lagarde clash over austerity (FT) - it would be great if someone actually implemented austerity...
• Merkel hints at tax cuts for growth boost (FT)
• Hollande Robbed of Growth Engine as Companies Cut Investment (BBG)
• Romney Narrows Gap With Obama in Swing State Polling (BBG)
• Sluggish Growth Seen Into Next Year (WSJ)
• Softbank Founder Has 300-Year Plan in Wooing Sprint Nextel (BBG)
• Singapore Forgoes Currency Stimulus on Inflation Risk (Bloomberg) - as does China day after day
• Sharp Jabs Dominate Combative Vice-Presidential Debate (WSJ)
• Japan and China Agree to Hold Talks on Rift After Noda Call (Bloomberg)

• Global easing deluge resumes: Bank of Korea Slashes Policy Rate (WSJ)
• And Brazil: Brazil cuts Selic rate to new record low of 7.25 pct (Reuters)
• With Tapes, Authorities Build Criminal Cases Over JPMorgan Loss (NYT) Just don't hold your breath
• IMF snub reveals China’s political priorities (FT)
• Add a dash of trade wars: Revised Duties Imposed by U.S. on Chinese Solar Equipment (Bloomberg)
• IMF calls for action as euro zone crisis festers (Reuters)
• Dubai Losing Billions as Insecure Expats Send Money Abroad (BBG)
• Softbank in Advanced Talks to Acquire Sprint Nextel (WSJ)
• Lagarde calls for brake on austerity (FT)
• EU lambasts Turkey over freedoms (FT)
• Race Tightens in Two States (WSJ)

Whether it is US companies' reporting or Chinese data confirming, times are getting tougher for the world's engine of growth. So, like every well-balanced western nation, instead of turning to meditation and exercise, beer appears the chosen method of stress-relief for the Chinese. As Bloomberg Briefs notes, three of the top six brands of beer in the world are Chinese with the great nation consuming 50 billion liters per year - more than double the US 24 billion. Do not worry though, USA is still #1 at 74 liters per capita per year relative to China's 37 liters. It would seem the start of their recession is perfect timing for them to make a run at increasing that average yearly intake. Already this year, Chinese domestic beer production is up 2% YoY and imports are up 100% - perhaps the only 'rising' data point the nation has seen; and maybe the next great anti-growth indicator.

Connecting the dots between my anecdotal observations of suburbia and a critical review of the true non-manipulated data bestows me with a not optimistic outlook for the coming decade. Is what I’m seeing just the view of a pessimist, or are you seeing the same thing? A few powerful men have hijacked our economic, financial and political structure. They aren’t socialists or capitalists. They’re criminals. They created the culture of materialism, greed and debt, sustained by prodigious levels of media propaganda. Our culture has been led to believe that debt financed consumption over morality and justice is the path to success. In reality, we’ve condemned ourselves to a slow painful death spiral of debasement and despair.

“A culture that does not grasp the vital interplay between morality and power, which mistakes management techniques for wisdom, and fails to understand that the measure of a civilization is its compassion, not its speed or ability to consume, condemns itself to death.” – Chris Hedges

Last August, a 400 point move in the DJIA was the norm. This August, a 50+ point drop in the second coming of the "Balls to the Wall" DJIA was the green light for sheer market panic. While unknown if it is the cause, or effect, of this collapse in volatility, the NYSE just reported that August cash volumes imploded by exactly 50% from last year, one thing is certain: for banks, which no longer make money on net interest margin courtesy of ZNIRP, and $1.6 trillion in inert reserves, the bulk of which are used to buy TSYs, then promptly repo them back to the Fed and use the cash proceeds to buy 200x+ P/E stocks, imploding stock volumes mean only one thing - a collapse in revenues and profits, terminations of entire divisions, collapse in tax revenues for the US Treasury, an increase in deficit, the need for more debt issuance, and a green light for the Fed to monetizing even more supply. And just to avoid the noise from "unseasonal" Y/Y comparisons, in August total ADV dropped by 12.6% from July. ETF volume imploded by two thirds from last year, and 14% from last month. Cue the financial earnings forecast reductions ahead of Q3 results.

Have you heard the news? Auto sales are booming. Total sales for the month of August were 1,285,202 vehicles, according to Autodata Corp, the highest monthly sales figure for any August since 2007, when 1.47 million autos were sold in the United States. Year to date auto sales have totaled 9.7 million and are on track to reach 14.5 million. Between 2006 and 2007, auto sales ranged between 16 million and 18 million. They crashed below 10 million in 2009. The Keynesians running our government have pulled out all the stops to restart this engine of consumer spending. First they wasted $3 billion of taxpayer funds on the Cash for Clunkers debacle. Almost 700,000 perfectly good cars were destroyed in order to keep union workers happy.  This Keynesian brain fart distorted the used car market for two years, raising prices for cars needed by the working poor. After that miserable failure, they realized the true secret to selling vehicles is to give them away to anyone that can scratch an X on a loan document, with 0% interest for 60 months, financed by Federal government controlled banking interests. Add in some massive channel stuffing and presto!!! – You’ve got an auto sales boom.... This is America, land of the delusional and home of the vain. The appearance of success is more important than actual success.

Over the past several months (and years) we have been warning that the ongoing collapse in trading volumes, in part due to the lack of faith in capital markets that now have all the integrity of a rigged Vegas casino from the 1960s, in part due to investors' need to monetize assets in a world in which wages simply refuse to keep up with prices, will have not only irreversible implications on the shape of market structure, but also substantial consequences when it comes to the layout of modern banks, and associated up and downstream variables, such a jobs, real estate, support professions, municipal taxes and much more. Nowhere is this more evident (for now at least) than in the massive corporate reorganization taking place at Nomura's American division, which among many other things is about to lose its brand new $270 million trading floor even before a single trader set foot in it.

September has arrived which means for Europe reality can, mercifully, return. First on the agenda: moments ago the French government suddenly announced the nationalization of troubled mortgage lender Credit Immobilier de France, which is also the country's second lagrest mortgage specialist after an attempt to find a buyer for the company failed. "To allow the CIF group to respect its overall commitments, the state decided to respond favourably to its request to grant it a guarantee," Finance Minister Pierre Moscovici said according to Reuters. What he really meant was that in order to avoid a bank run following the realization that the housing crisis has finally come home, his boss, socialist Hollande, has decided to renege on his core campaign promise, and bail out an "evil, evil" bank. Sadly, while the nationalization was predicted by us long ago, the reality is that the French government waited too long with the sale, which prompted the Moody's downgrade of CIF by 3 notches earlier this week, which in turn was the catalyst that made any delay in the nationalization inevitable. The alternative: fears that one of the key players in the French mortgage house of cards was effectively insolvent would spread like wildfire, leading to disastrous consequences for the banking system. End result: congratulations France: your Fannie/Freddie-Dexia moment has finally arrived, and the score, naturally: bankers 1 - taxpayers 0.

The usual suspect, the all-powerful French nuclear industry?

In continuing my rant on the Apple v. Samsung verdict, I wish to make clear once again that the vast majority of consumers of Google's and Apple's products are absolutely oblivious to the business model of Google, the business practices of Apple and the shadowy aggressive survival tactics of the behemoth that is Microsoft. If I am correct in this assertion then the potential ramifications of Apple actually defeating Samsung in the patent case decided last week is also lost on most.

• Romney Promises to 'Restore' U.S. (WSJ)
• Dirty Harry Makes Surprise Appearance (WSJ)
• It has always been about the gold: Time for eurozone to reach for the gold reserves? (FT)
• EU Plan Said to Give ECB Sole Power to Grant Bank Licenses (Bloomberg)
• More attempts to marginalize Germanty: Brussels pushes for wide ECB powers  (FT)
• Justice may be blind but it has geographic limits: Apple Loses Patent Lawsuit Against Samsung in Japan (BBG)
• ECB Said to Use Greek Myth for Security on New Euro Banknotes (Bloomberg)
• Alberta deficit set to triple on slumping oil prices (Globe and Mail)
• Reid's ties to China-Nevada solar plan draw ire (Reuters)
• Bernanke may hint at QE without boxing Fed in (Reuters)
• Berezovsky loses against Abramovich  (FT)
• Spain Considers Bankia Re-Capitalization Without EU Money (Bloomberg)

The largest consumer products companies and retailers are already adjusting to it.