Economics 101 tells us that prices in a free market are set by the interaction of supply and demand. The world oil markets have gotten a graphic lesson in that truth over the last year, as the dramatic surge in US oil production has met stagnant demand. This, in turn, has pushed down spot prices by nearly half. The recent uptick in oil prices, however, has buoyed hopes among market watchers that a strong oil price rally is in order. Unfortunately economics is working against these investors.
As the US moves closer to putting boots on the ground in Iraq and Syria to counter an ISIS "offensive", The New York Times is out with a series of graphics which document the group’s spread.
The financial world today is now an island on its own – separated from the real economy, as can be seen by the paradox of record high valuation in the stock market coinciding with record low inflation, employment , productivity and no hope. There is asset inflation, but deflation in the real economy. When the world has been this long at the zero-bound, the misallocation, the inability to reform, and a toolbox without new tools creates a mandate for change. "I expect stocks to trade sideways for the balance of 2015 and have now sold all my fixed income, increased my gold exposure, and I’m looking to buy mining companies and overall to increase my exposure to commodities beyond the normal allocation."
The US is now considering the possibility of sending so-called "spotters" to Iraq, a move ostensibly aimed at making airstrikes against ISIS more effective. Meanwhile, the militant group has claimed responsibility for Friday's suicide bombing in Saudi Arabi that killed 21.
“Ignorance is not bliss – it is oblivion. Determined ignorance is the hastiest kind of oblivion.” As investors, we have all been warned. Not by the future, but by the past.
In downgrading the city, Moody’s said it expected “Chicago's credit challenges will continue, both in the near term and in the long term [as] unfunded liabilities of the Municipal, Laborer, Police, and Fire pension plans grow and exert increasing pressure on the city's operating budget.” That looks to have been an accurate assessment, because as Bloomberg reports, Chicago’s budget gap is set to triple by 2017.
The consequence of policies that exacerbate injustice, inequality and double-bind demands is a madness that will find a social and economic outlet somewhere, sometime.
No matter what investors SAY they will do, they will almost always succumb to the emotional investment mistakes caused by being human.
Once government becomes the arbiter of what speech is and isn’t legitimate, the door is inevitably thrown wide open to the suppression of all political dissent.
The reason everything is being built for the wealthy, is because all the gains from the oligarch recovery have gone to the wealthy. This is no accident. It’s how the bailouts were designed, and how the status quo operates. Our socio-economic system since 2008 can be best described as serfdom, and nothing is going to change until people admit this, rather than hanging on to false hopes that they one day too will become an oligarch. It’s not gonna happen.
"The Fed has dragged out the normalization of interest rates way beyond what is prudent... At some point... the market is going to say ‘on my god, we’re so far behind the curve’ and force an adjustment that is going to be wrenching... when this “wrenching” adjustment kicks in, it would turn into a market disruption at a level “seven or eight” on a scale of 10, with 10 being the worst."
The rising risk to the housing recovery story lies in the Fed's ability to continue to keep interest rates suppressed. It is important to remember that individuals "buy payments" rather than houses. With each tick higher in mortgage rates so goes the monthly mortgage payment. With wages remaining suppressed, 1 out of 3 Americans no longer counted as part of the work force or drawing on a Federal subsidy, the pool of potential buyers remains tightly constrained. While there are many hopes pinned on the housing recovery as a "driver" of economic growth in 2015 and beyond - the lack of recovery in the home ownership data suggests otherwise.
Even without a double seasonal adjustment, the Fed may very well surprise with not only a September, but even a June hike. After all recall that to Yellen stocks are now clearly overvalued, and the cornered Fed Chairwoman is between a rock and a hard place - keep failing to rase rates and risk another bond tantrum as all the shorts are squeezed leading to even more illiquidity and volatility, or slowly take the air out of the stock bubble (good luck with that).
The big news overnight was neither the Chinese manufacturing PMI miss nor the just as unpleasant (and important) German manufacturing and service PMI misses, but that speculation about a rate hike continues to grow louder despite the abysmal economic data lately, with the latest vote of support of a 25 bps rate increase coming from Goldman which overnight updated its "Fed staff model" and found surprisingly little slack in the economy suggesting that the recent push to blame reality for not complying with economist models (and hence the need for double seasonal adjustments) is gaining steam, and as we first suggested earlier this week, it may just happen that the Fed completely ignores recent data, and pushes on to tighten conditions, if only to rerun the great Trichet experiment of the summer of 2011 when the smallest of rate hikes resulted in a double dip recession.
We do not have to choose between liberty and security. We can have both, and we can provide it for ourselves as our own protectors. Sheepdogs be damned. Each citizen is his first and best line of defense. Only when the American people take on the philosophy of self-defense rather than government reliance will we be free of fear from terrorism and free of fear from tyrannical government. This is the answer to the propaganda of militarization. ISIS does not matter. It is what we ultimately do about ISIS or similar threats that matters, and martial law is not the answer.