Real estate

With Bernanke now making it extremely clear that housing is all we have, the following may raise a few eyebrows. Accommodate, accommodate, accommodate, accommodate... that was and is the mantra. It did not matter whether it was the S&L fiasco, 9/11, the sub-prime bubble or the Lehman collapse, the Fed's policy is to accommodate. All good things must come to an end. Look at that chart. We are about to go off the page. With QE-to-infinity, Bernanke is spent. Each new iteration of accommodation is bringing in less results.

A suddenly seemingly hawkish Ben Bernanke may be giving the impression he is preparing to taper because he feels confident enough about the recovery (just don't ask him about sudden dramatic rises in yields: that "puzzles" him). Yet as those who have been reading Zero Hedge for the past three years know, this jobs "recovery" is purely quantitative (not to mention seasonally adjusted): the quality of jobs regained is, in a word, abysmal, with the bulk of new job creation benefiting part-time and minimum-wage jobs. If anything, this loss of saving power, is the backdrop not for a recovery, but for a depression far more acute than the current "sugar-high" one when the Fed finally pulls the training wheels off, and when the US consumer realizes that all purchasing power is gone, all gone, and in exchange the only valuable and competitive job skills gained have been, well, absolutely none.

With better access to credit, housing, jobs and overall standard of living than probably anyone in their family has ever experienced, you would think that the average Brazilian would have little reason to hit the streets. And yet, they are. While the credit-fueled boom has been great and looks likely to continue for at least a little while longer, the reality of a government that has made little real progress improving the overall standard of living is becoming all too obvious. The protestors are frustrated.  Frustrated with persistent inflation – that hits them much harder than the upper classes who in many ways benefit from it.  Frustrated with corruption – while the Brazilian congress tries to pass a law that would limit the number of corruption cases that can be brought.  Frustrated with inefficient government – the infrastructure development for the World Cup and Olympics is already running up against cost overruns with projects of questionable long-term value.  But mostly frustrated that due to all of this incompetence, they could lose all of the gains they made since 2002. Changing Brazil’s well-established rich/poor, connected/unconnected, boom/bust political and financial system will be difficult in the extreme.

After exposing the faux prosperity of the immediate post-2009 "wholly unnatural" recovery and explaining the precarious foundation of the Bernanke Bubble, David Stockman's new book 'The Great Deformation' delves deeper (in Part 2 of this 4-part series) into the dismal internals of the jobs numbers and only the utterly politicized calculation of the “unemployment rate” that disguises the jobless nature of the rebound. To be sure, the Fed’s Wall Street shills breathlessly reported the improved jobs “print” every month, picking and choosing starting and ending points and using continuously revised and seasonally maladjusted data to support that illusion. Yet the fundamentals with respect to breadwinner jobs could not be obfuscated - by September 2012, the S&P 500 was up by 115 percent from its recession lows and had recovered all of its losses from the peak of the second Greenspan bubble. By contrast, only 200,000 of the 5.6 million lost breadwinner jobs had been recovered by that same point in time.

A week ago we showed a chart from Charles Gave which does a terrific job at explaining why the modern economic "science", in conjunction with the Fed's negative rate environment, have failed at their ultimate stated mission - to stimulate growth. The reason: the Keynesian multiplier, which has tracked the nominal US GDP 7yr average change with a very high correlation, is now negative. From Gave: "shows that the marginal efficiency of public debt, at least in the US (public spending in emerging markets from a low base usually improves productivity) has been declining structurally since 1981. And it seems that this marginal efficiency has now reached a negative level."... There is now another problem: as the chart below shows, China has developed a Keynesian multiplier problem of its own. Even as the Chinese politburo and the PBOC have been injecting an ever increasing amount of credit into the private sector - the primary source of Chinese growth - the incremental GDP growth has been trending lower, and lower, and lower...

It is all too easy to dismiss endless charts showing long-run correlations that have become useless in the current liquidity-fueled boom in stocks and real estate in the US with the "well, correlation is not causation" meme, but in Spain, we suspect, few will argue that the relationship between the surging unemployment rate of the OMT-bound nation and its delinquent loan growth is hard to argue with. With both at record highs (and the latter picking up once again after a temporary haitus of seeming banking delays offered some hope), it appears the southern European nation is going from worse to worst.

A mixed picture is starting to emerge from the Middle East in terms of oil production. Several members of the 12-member OPEC oil cartel are embroiled in turmoil or struggling to ensure post-war political gains. Oil production from the Middle East declined by 1.5 million barrels per day in 2009. Production from most Middle East countries has slowed down or leveled off, though gains from Iraq have offset some of those declines. With economic recovery seemingly on the horizon, a new OPEC may be developing from the ashes of the recession.

• Obama Says Bernanke Fed Term Lasting ‘Longer Than He Wanted’ (Bloomberg)
• Merkel Critical Of Japan's Credit Policy In Meeting With Abe (Nikkei)
• China Wrestles With Banks' Pleas for Cash (WSJ)
• Biggest protests in 20 years sweep Brazil (Brazil)
• Pena Nieto Confident 75-Year Pemex Oil Monopoly to End This Year (Bloomberg)
• G8 leaders seek common ground on tax (FT)
• Putin faces isolation over Syria as G8 ratchets up pressure (Reuters)
• Former Trader Is Charged in U.K. Libor Probe (WSJ) - yup: it was all one 33 year old trader's fault
• Draghi Says ECB Has ‘Open Mind’ on Non-Standard Measures (BBG)
• Loeb Raises His Sony Stake, Drive for Entertainment IPO (WSJ)

Few others are better equipped to comprehend both the insider's and outsider's perspective on what the government, the Fed, and the banks are doing in this so-called 'recovery' we are experiencing than David Stockman. Nowhere does he detail this better than Chapter 31 of his new book 'The Great Deformation'. In this first part (of a four-part series), he explains just what happened after the US economy liquidated excess inventory and labor and hit its natural bottom in June 2009. Embarking upon a halting but wholly unnatural "recovery," doing nothing but igniting yet another round of rampant speculation in the risk asset classes. The precarious foundation of the Bernanke Bubble is starkly evident in the internal composition of the jobs numbers.

Why do the debt crisis in Cyprus and the subsequent "bail-in" confiscation of bank depositors' money matter? They matter for two reasons: 1. The banking/debt crisis in Cyprus shares many characteristics with other banking/debt crises. 2. The official Eurozone resolution of the crisis--the "bail-in" confiscation of 60% of bank depositors' cash in an involuntary exchange for shares in the bank (which are unlikely to have any future value)--may provide a template for future official resolutions of other banking/debt crises. In other words, since the banking/debt crisis in Cyprus is hardly unique, we can anticipate the resolution (confiscation of deposits) may be applied elsewhere.

First it was the "most important" payroll print in years, then the "most important" retail sales number, and now we are just days ahead of the "most important" FOMC statement in years as well, as the fate of the centrally-planned markets lies in the hands of Bernanke's decision to taper, or not to taper. The main catalyst for now still appears to be an ongoing wrong interpretation of Hilsenrath's Thursday blog post in which some still see reaffirmation by the Fed that it won't taper, when all the Fed's mouthpiece said is that the short-end would be anchored even as the long-end is allowed to rise. Looking at the well-known no volume levitation futures action, which in the overnight session has wiped out all of Friday's losses and then some simply due to a 2.73% rise in the Nikkei overnight back above 13,000 driven by the USDJPY briefly regaining 95.00, the market has made up its mind (if only for the time being) that whatever decision the Fed takes regarding the monthly level of liquidity injection is a bullish one. At least until it changes its mind next.

We discuss legitimate credit vs. counterfeit central bank credit, the concepts of marginal time preference and productivity, speculation, and finally resonance.

Things have been a little erratic lately here in US, but not really headline-worthy. The economy continues to grow, sort of, houses continue to sell and stock and bond prices fluctuate but can’t seem to follow through in either direction. We are not, in short, engulfed in any kind of crisis. But out in the world, especially in once-hot emerging markets like Brazil and China, the story is very different. So can the US stay placid when the rest of the world turns chaotic? Highly doubtful. There’s a market phenomenon in which one investment play blows up and forces those on the wrong side of the trade to dump their liquid assets to raise cash. Which causes the high-quality assets to fall as much or more than the junk. As Noland notes, the world’s premier liquid asset is the Treasury bond. If the developing world’s need to raise cash is a factor in the recent spike in US interest rates, this implies a feedback loop in which rising US rates further destabilize emerging markets, forcing the sale of more Treasuries, and so on.

By 2025 the drone industry will employ 100,000 people and be worth $82 billion globally, as it is not just about spying anymore...

It’s clear now that the system has turned on the very people who invest their faith and confidence in it. We can see the obvious effects of decades of morbidly destructive policy. We can see how the way of life we grew up with has become a distant memory, replaced by a cheap masquerade. We can see the debt, the money printing, the police state, the utter collapse of justice and rule of law… and the shiny facade of mindless entertainment and wanton consumerism as an attempt to cover it all up. And yet… it’s still so hard to turn one’s back. Deep within ourselves there’s still a quiet voice that says “This can be fixed. It’s going to get better.” This is the voice of hope. Hope, along with loyalty, is one of the most admirable traits of humanity. And it’s certainly honorable to want to rebuild what has been lost. But please consider these few points...