In the past five years it has become apparent that America can survive a near-fatal financial system collapse, an economy teetering on the edge and kept ticking only thanks to the Fed's now perpetual QE, a collapsing standard of living for everyone but the wealthiest 0.1%, declining wages, zero interest rates, surging food, energy, rent, tuition and welfare costs, and pretty much everything else, as long as the welfare state keeps humming along. Any be welfare state we mostly mean providing the daily bread to the nearly 50 million Americans living in poverty and surviving only thanks to the only thing to have exploded to epic record highs under Obama (in addition to the Fed's balance sheet of course): foodstamp usage. However, the true stability of the US may be tested very soon following reports that due to a "possible computer glitch" the Electronic Benefits Transfer System, aka EBT, ala Foodstamps, is offline. Cue mass panic among the best-weaponized population in the world. Naturally, this latest fiasco involving a country that has grown accustomed to sucking on the government's teat was immediately blamed on a "glitch" - just like everything else that is slowly but surely breaking in the New Normal.
This objective report concisely summarizes important macro events over the past week. It is not geared to push an agenda. Impartiality is necessary to avoid costly psychological traps, which all investors are prone to, such as confirmation, conservatism, and endowment biases.
The euro system has many peculiarities as we have shown extensively on our blog. To a large extent the system can be analyzed as a “tragedy of the commons” problem. As is well known in economics, when a shared resource can be exploited in full by individuals with no exclusive property right, the resource will be overexploited.
The euro is a shared resource. Every national central bank can exploit it to the fullest while the cost will be shared by every member state.
The incentive in such a system is obviously rigged to its disfavor and it will eventually break down.
The chart below lay outs the amount of Bill, Note and Bond maturities between October 18 and November 15: it totals a whopping $441 billion... And according to our and the BPC's preliminary calculations, just focusing on simply paying down this debt in the all too likely case that the rollover machinery grinds to a halt, means that the Treasury would be about $180 billion short of paying down just the amounts due in the table above!
There used to be a time when US manufacturing set the pace for the entire world, and was the leading indicator for growth in developed and emerging economies around the globe. Unfortunately, in the days of the New Normal, this indicator has lost its potency, and has been replaced by the only variable that currently matters: which central bank is injecting the most credit money into a fungible, globalized marketplace (where for some reason analysts continue to confuse the economy with the centrally-planned market). Still, what the US does has reverberations around the world. Which is why the following chart showing MarkIt manufacturing index (PMI) data for the world's countries may be troubling. Despite hitting a global two year high of 51.8 in September, the key US subcomponent has been on a downward slope since the start of 2013.
David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...
What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...
He calls this condition "Sundown in America".
Faith, hope, and central bank charity... that's all there is left in the new normal.
The New Normal: a world in which the best performing "asset" in the month of September was the stock market of bankrupt Greece, while silver, that historic store of value, was on the other end, performing the worst.
Not a segment goes by on today's business media when we have not heard that "Bill Miller says AAPL is a no brainer." Of course, it is no surprise that markets have no memories but to heed the vehement advice of an almost self-proclaimed dip-buyer who told the New York Times that "not understanding the systemic nature" of the market "was his biggest mistake," in the new normal of too-bigger-to-fail banks and ever-longer collateral chains seems risible. As to his confidence, we remind those who care, that on Dec 3rd 2008, Miller said the "bottom has been made" in U.S. equities. Trade accordingly...
Just a month ago, we were exuberantly told that the 14.7% rise in August sales for GM (against an expectation of an 11% rise) was not just great news but was entirely sustainable. Some suggested that this was merely demand dragged forward as rates rose, dealers channels were stuffed, and the vinegar strokes of an exuberant Fed were occurring. Today we have our answer...
- *GM U.S. SEPT. VEHICLE SALES FALL 11%, EST. DOWN 4.2%
- Inventory up to 82 days from 64 days!! (Surge to 670,191 units from 628,644 prior)
We are sure that weather played a role; the calendar didn't help; government (Republicans) are probably at fault somehow; and it's a 'blip' but it seems like quite a miss for a "sustainable" new normal in auto sales.
BofA's breakdown: "The shutdown will likely add to the budget deficit. It is costly to stop and start programs. The 1995-96 shutdown directly added $1.4 bn to the deficit (about $2.5 bn in today’s dollars) Moreover, the shock to growth will undercut tax revenues. In addition, ironically it does not impact the implementation of Obamacare since it is an entitlement similar to Medicare. However, there is some chance it could delay US economic data releases: in 1996, the December employment report was delayed two weeks as a result of the shutdown then. The Federal Reserve and the Post Office, both of which do not depend on Congressional appropriations, will not see any cutbacks due to a shutdown."
For the first time in 4 months, Chicago PMI printed better than expected with its highest level since May. Production and New Orders rose but in keeping with the new normal, the employment sub index fell for the 3rd month in a row to 5 month lows. It seems the good news that was "expected" as the market ramped higher into the release has been stymied by good news is bad news reality as all the opening ramp gains have faded.
The sausage-making continues... "stop the madness" urge Dem. Nita Lowey, but once the committee has agreed, it's off to the floor for what the White House calls:
"A vote for the Republican bill is a vote for Shutdown"
Despite the House's bill claiming it is to keep the government funded... It seems do as we say or else is the new normal White House policy as the fear-mongery grows.
With President Obama now on closer talking terms with Iran's President Rouhani than the Republicans, we thought the "major geopolitical shift," that this is supposed to be should be offset with a glance at the 'known' nuclear facilities that Iran possesses as the White House proceeds along its "difficult" path to "resolution" - not not regime change...
They say "money can't buy happiness" (though it will pay for the search) and it seems despite all their billions, Tesla's Elon Musk and Amazon's Jeff Bezos just can't find a happy middle ground over the control of a historic launch pad at Kennedy Space Center. According to Bloomberg, SpaceX (Musk), and Blue Origin (Bezos) intend to ramp up their launch schedules and "there are a limited number of East Coast established launch sites." Of course, in the new normal we live in, both sides have taken the higher ground and are trying to get Congress' attention, "it doesn’t matter if you’re making buggy whips or rockets, the way to get Congress’ attention is to hire a lobbyist," and sure enough the letters are flying. And after all: what billionaire can be truly satisfied unless they own a rocket launch pad?