Last week, the main area of focus was the political situation in the US where Democrats and Republicans finally agreed upon a short term fix to reopen the government and extend the debt ceiling. The conclusion of this saw equity markets rally to all time highs in Europe and the US, with the USD continuing to slide as markets turn their attention to the Fed’s QE programme and push back expectations of when the central bank will begin to pull back on asset purchases. With the government now reopen, attention will turn to the numerous data releases that were delayed but will now take place over the next two weeks, including the jobs report which is due on Tuesday. The release of this report will once again be used to help predict when the Fed will begin to taper QE however, recent comments from Fed members have suggested that October is likely to be too soon trim bond buying due to the lack of key macroeconomic data and the unknown economic impact as a result of the government closing for 16 days.
Dispassionate discussion of some of the vexing issues.
I like Professor Shiller and respect his work. Really, I do, but... Massive bubbles, the sort of the proportion of the 2008 crisis, are nigh impossible to miss if you can add single digits successfully and are able to keep your eyes open for a few minutes at a time. Yes, I truly do feel its that simple. I saw the property bubble over a year in advance, cashed out and came back in shorting - all for a very profitable round trip. Was I a genius soothsayer? Well, maybe in my own mind, but the reality of the situation is I was simply paying attention. Let's recap:
The study is called the Program for the International Assessment of Adult Competencies and it tested 166,000 people aged 16 to 65 in more than 20 countries. It found that in math, reading and problem solving, American adults scored below the international average. We can’t say this is surprising, after all, the public allowed the big banks that destroyed the economy to gift themselves trillions in the aftermath of the financial crisis with barely a peep in response. You don’t have to be a problem solving genius to figure that one out.
There really is very little reason why this "government shutdown" cannot continue indefinitely because almost everything is still running. 63 percent of all federal workers are still working, and 85 percent of all government activities are still being funded during this "shutdown". It turns out that the definition of "essential personnel" has expanded so much over the years that almost everyone is considered "essential" at this point. In fact, this shutdown is such a non-event that even referring to it as a "partial government shutdown" would really be overstating what is actually happening. In the end, this shutdown could turn out to be very good for America. We have a government that is wildly out of control and that desperately needs to be reigned in.
- Government Heads Toward Shutdown (WSJ), First U.S. Shutdown in 17 Years at Midnight Seen Probable (BBG), Congress in game of chicken (RTRS)
- Italian Premier Pursues Last-Ditch Rescue of Government (WSJ)
- Election risk rattles Italian government bonds (RTRS)
- Obama and Ryan Stay on Sidelines on Budget (WSJ)
- Volcker Rule Costs Tallied as U.S. Regulators Press Deadline (BBG)
- Faltering Chinese Factory Growth Adds to Rebound Fears (FT)
- Health Law Hits Late Snags as Rollout Approaches (WSJ)
- Apple Overtakes Coca-Cola as Most Valuable Brand, Study Finds (BBG)
- Euro-Area September Inflation Slows More Than Forecast on Energy (BBG) - Puting will fix that shortly
- House GOP banking on Plan C (Politico)
- Pimco shook hands with the Fed - and made a killing (Reuters)
- BlackBerry's Torsten Heins has a $55 Million golden parachute (Reuters)
- JPMorgan Urged to Pay More in Mortgage Deal (NYT)
- Soros Adviser Turned Lawmaker Sees Crisis by 2020 (BBG)
- U.N. Members Agree on Syria Disarmament (WSJ)
- U.N. Says Humans Are 'Extremely Likely' Behind Global Warming (WSJ)
- The non-falsifiable threats emerge: Shutdown Would Shave Fourth-Quarter U.S. Growth as Much as 1.4% (BBG)
- Swaps Rules Worry Industry: Coming Regulations Have Market Players Concerned About Possible Disruption (WSJ)
With spending habits waning amid soaring interestrates and rising gas prices, it is perhaps useful to note the trends in the stickiest of spending habits - tobacco, alcohol, and fast food...
The most important event of the "coming" week was unexpected, and did not even take place during the week, but the weekend. So with Summers unexpectedly, and uncharacteristically out, here is what else is in store.
"I estimate the US fiscal gap at US$200 tn, 17 times the reported US$12 tn in official debt in the hands of the public.... Our country is broke. It’s not broke in 50 years or 30 years or 10 years. It’s broke today. Six decades of take as you go has led us to a precipice. That’s why almost the entire economics profession is talking as one at www.theinformact.org. Economists from all political persuasions are collectively sending our government a warning about what is, effectively, a nuclear economic bomb. I’ve been around economics for a long time. I’ve never seen such a strong response to a proposed Congressional bill. This is the profession sending a statement to the President and Congress that’s not unlike the warning physicists sent via Einstein to Roosevelt about the bomb." Larry Kotlikoff
For the last few days we have been bombarded with words that appear 'peaceful' and problem-solving from Russia with love. Of course, 'no change' benefits mother Russia the most as his government's gas revenues (and political power) will continue to flow from Europe (a quarter of Russian government income comes from being Europe's gas supplier). So it will come as no surprise that amid the Mother Theresa acts, The Telegraph reports that Putin is readying delivery of more S-300 air-defense missile systems to Iran and will continue to discuss "working together in the nuclear energy spehere." Combine that with experts' views that Russia's plan to dismantle Syria's stockpiles of mustard gas, sarin, VX nerve agents is a long shot; initially "sounding attractive, but very quickly, operational problems could derail obtaining international control, much less actually destroying the arsenal." It would appear, despite all the chatter, that Putin is increasing his power-base in the region.
- Obama Holds Fire on Syria, Waits on Russia Plan (WSJ)
- China Shadow Banking Returns as Growth Rebound Adds Risk (Reuters)
- Not one but two: Greece May Need Two More Aid Packages Says ECB’s Coene (WSJ)
- BoJ insider warns of need for wage rises (FT) ... as we have been warning since November, and as has not been happening
- California city backs plan to seize negative equity mortgages (Reuters)
- Home Depot Is Accused of Shaking Down Suspected Shoplifters (BBG)
- Most-Connected Man at Deutsche Bank Favors Lightest Touch (BBG)
- Norway Pledges to Limit Oil Spending (BBG)
- China Shadow Banking Returns as Growth Rebound Adds Risk (BBG)
- Gundlach Says Fed Is Mistaken in How It's Ending Easing (BBG)
San Francisco Fed head John Williams - known for his extremely dovish views on monetary policy (and support of record accomodation) - appears to have taken some uncomfortable truth serum this morning. In a speech reminiscent of previous "froth" discussions and "irrational exuberance" admissions, Williams explained:
- *WILLIAMS SAYS POLICY MAY YIELD ASSET BUBBLES, UNINTENDED RESULT
- *WILLIAMS: ASSET-PRICE BUBBLES AND CRASHES 'ARE HERE TO STAY'
- *WILLIAMS: ASSET-PRICE BUBBLES ARE 'CONSEQUENCE OF HUMAN NATURE'
His words appear to reflect heavily on the Fed's Advisory Letter (from the banks) from 3 months ago - warning of exactly this "unintended consequence." This, on the heels of Plosser's recent admission that the Fed was responsible for the last housing bubble, suggests with the black-out period before September's FOMC about to begin, the Fed is sending us a message that Taper is coming - as we know they are cornered for four reasons (sentiment, deficits, technicals, and international resentment).
A dispassionate discussion of the weekend events and a look at the week ahead.
Wealth has besotted people since time immemorial. It’s accrued, amassed, hidden, stolen and we would even die sometimes for it, or at least knock someone off more than likely to get what they have.