While the White House spied on Frau Merkel and Obamacare developed into a slow-moving train wreck, while Syria was saved from all-out war by the Russian bell and the Republicrats fought bitterly about the debt ceiling… something monumental happened that went unnoticed by most of the globe. The US quietly surpassed Saudi Arabia as the biggest oil producer in the world. You read that correctly: "The jump in output from shale plays has led to the second biggest oil boom in history," stated Reuters on October 15. "U.S. output, which includes natural gas liquids and biofuels, has swelled 3.2 million barrels per day (bpd) since 2009, the fastest expansion in production over a four-year period since a surge in Saudi Arabia's output from 1970-1974." After the initial moment of awe, pragmatic readers will surely wonder: Then why isn't gasoline dirt-cheap in the US?
While nearly three years after the Fukushima disaster the world is finally focused, rightfully so, on the epic ecological and radioactive clusterfuck unfolding in Japan, where in a desperate effort to distract the population from what is going on in its back yard, the Premier has launched the most ridiculous monetary experiment doomed to failure, the reality is that the US itself harbors a veritable waste land of radioactive fallout, much of it hidden in plain sight. As the following interactive map from the WSJ shows, of the 517 active sites in the continental US, found on the Department of Energy's listing of facilities "considered" for radioactive cleanup through its Formerly Utilized Sites Remedial Action Program, some 43 have a "potential for significant radioactive contamination" through the time of the study. Find out if your state, city, or town is located next to a potential dormant and largely secret Fukushima, using the following handy interactive map.
The USD surged and Treasury bond prices and precious metals tumbled instantly on the FOMC's statement but stocks decide it was time to ramp to VWAP (and VIX was hammered lower). After the initial knee-jerk, stocks caught back down to the reality of the other markets as it appears the investing public chooses to "sell the news" on the basis that the Fed removed the 'tightening conditions' language. The only question now is just how much of November, December, and January's seasonal hope has been pulled forward into the last few days.
UPDATE: VIX just spiked again to 19.53%
While we have already heard this morning of numerous Nasdaq options markets prices being crossed, the latest SNAFU involves nothing less than that ultimate lever of market performance - the VIX - which just flash-smashed:
*VIX EARLIER SURGED TO 21.26 IN SINGLE TRADE THAT WAS ERASED
*VIX SURGES TO 15.27 BEFORE IMMEDIATELY DROPPING TO 14.17
It would appear that fist-stomping the "Sell VIX" button too many times on the Fed's Bloomberg terminal keyboard temporarily exposed reality. Or did the Fed realse its statement prematurely once again?
"We now rely on social structures that barely existed 150 years ago. The order and functioning of modern societies, economies and militaries depend upon tight coordination of logistics and operations. Disrupt the synchronization, and the whole system of systems becomes unreliable—thus diminishing the nation’s power and influence."
"The century-old dream and nightmare of crippling a modern society by wrecking its infrastructure—or just by disturbing its synchronization of functions—is now a reality others are dreaming of employing against the United States"
"The NSA and USCYBERCOM operate under multiple layers of institutional oversight that reinforce our commitment to privacy and civil liberties."
"Far from imperiling civil liberties and privacy, the tight links between the NSA and our growing cybercapabilities help to ensure professional, sober and accountable consideration of potential impacts from our operations."
"Building that extended cyberenterprise now is indispensable to our ability to deter and defeat enemies in cyberspace so that they do not threaten our security, prosperity and way of life."
The first and last time a critical data center for Obamacare crashed this past Sunday night, leading to healthcare.gov becoming completely inaccessible and thus halting enrollment (assuming there had been any in the first place but of course allowing the government to blame any lack thereof on Verizon), we said "whether or not Verizon fixes the glitch any time soon, or merely lets it linger, one thing is becoming obvious: the Obamacare delay, which was hard fought by the Teaparty, and which was so opposed by the administration leading to the grotesque 16 day government shutdown, has all but become a reality with every passing day. Only instead of someone actually taking responsibility, said delay will be scapegoated on Verizon's data centers, faulty fiber-optic and copper cables, Cisco switches, Syrian hackers, millions of lines of faulty (Fortran?) code, inept contractors, end users who never read the Help.doc file, and everyone and everything else. Just never the government itself." Once again, we were proven correct when overnight the Connecticut state healthcare exchange, "Access Health CT", announced that the Obamacare data hub was "experiencing an outage" on Tuesday evening. The culprit - Verizon once again. Which answered our question: not Syrian hackers or Cisco but, conveniently, Verizon Terremark.
If ever there was a few minutes of television to confirm the deep-seated disconnect between reality and the ivory-tower academics pulling the levers behind the curtain, CNBC's Rick Santelli just exposed it. For once, simple questions were enough to allow none other than Nobel-Prize-winning economist Eugene Fama to show Santelli (who did his best not to explode in incredulity) that the "smartest people in the room" just don't get it (just as they didn't get it in 2007). Santelli was gracious and polite as he asked what the great professor's thoughts were on QE... (and the entire brief clip is worth watching in its entirety) but his conclusion is perhaps the most stunning (and left Santelli almost silent)... when asked the impact of the Fed 'Tapering' or even selling down its $4 trillion in assets, Fama calmly says "it's basically a neutral event... It's No Big Deal!" Indeed, professor, that is so clear...
The last two weeks have seen US equity markets on a one-way path to the moon, breaking multi-year records in terms of rate of change and soaring to new all-time highs. However, away from the mainstream media's glare, another 'market' has been soaring - but this time it is not good news. Chinese overnight repo rates - the harbinger of ultimate liquidity crisis - have exploded from 6-month lows (at 2.5%) to 4-month highs (6.7% today). The PBOC even added liquidity for the first time in months yesterday (via Reverse Repo - at much higher than normal rates) but clearly, that was not enough and the banks are running scared once again that the re-ignition of the housing bubble in China will mean more than 'selective' liquidity restrictions.
Not only would SocGen be shocked if the Fed made any significant policy shift this week, they appear to be finding "belief" in a growth renaissance hard to sustain in light of the dismal reality that keeps getting in the way of 'faith'. Undertaking any policy shifts at this meeting would be akin to driving at night with no headlights, they note, taking the opportunity to slash Q3 and Q4 GDP expectations - pushing off hope for any Taper announcement until late Q1 at its earliest. Of course, they remain "fundamentally bullish" on US growth (or every assumption about the world would implode) but the mid-year inflection point they hoped for appears to be further into the future than they hoped.
Many have asked us to expand on how the rapid expansion of money supply leads to an effect the opposite of that intended: a fall in economic activity. This effect starts early in the recovery phase of the credit cycle, and is particularly marked today because of the aggressive rate of monetary inflation. The following are the events that lead to this inevitable outcome. And while many central bankers could profit by reading and understanding this article, the truth is they are not appointed to face up to the reality that monetary inflation is economically destructive, and that escalating currency expansion taken to its logical conclusion means the currency itself will eventually become worthless.
You know the old rule of thumb about laws - the more high-sounding the legislation, the more destructive its consequences. Case in point, HR 3293 - the recently introduced Debt Limit Reform Act. Sounds great, right? After all, reforming the debt seems like a terrific idea. Except that’s not what the bill really does. They’re not reforming anything. HR 3293?s real purpose is to authorize the government to simply stop counting a massive portion of the US national debt.
As the Detroit bankruptcy hearing heats up following news that the city's unsecured creditors, among them pensioners, are set to recover pennies on the dollar, 16 to be precise, the question of which are the next cities to follow in the footsteps of bankrupt Motown, becomes relevant once again. Courtesy of the WSJ, and the second part of its series on "U.S. Cities Grapple With Finances", here is a list of the US cities that when push comes to shove metaphorically, and when the money runs out literally, will have no choice but to knock on the door of the local regional bankruptcy court and submit that long-prepared bankruptcy petition. Specifically, here are the cities that have 10 days or less in cash on hand available. Because, unless one is the Fed, cash and lack thereof is all that matters.
Having recently pointed out Draghi's worst nightmare, we thought the anti-thesis of hope over reality that is occurring in European "markets" was worth pointing out. Spanish sovereign bond spreads have collapsed this week to their lowest (least risky) in 30 months at a mere 229bps. The total and utter disconnect of this supposed 'free market' based measure in the face of nothing but terrible Spanish data is entirely without precedent...
As the investing public looks around for reasons why US equities are rallying, the harsh reality is highlighted in the following chart... all that matters is what JPY carry is doing. While correlation is not causation, we suspect you'd be hard-pressed to suggest we are not on to something here...
Aside from the fact that this morning's dismal confidence data likely inspired more Fed-inspiration, the fact of the matter is that US equities remain beholden to the ebb and flow of JPY-carry trades. This morning's surge in the latter (EURJPY) can be attributed to ECB's Nowotny, who dropped this little tape-bomb earlier:
*ECB'S NOWOTNY SAYS 'NO REALISTIC PROSPECT' OF RATE CUT: MNI
*NOWOTNY SAYS ECB UNLIKELY TO CUT BENCHMARK OR DEPOSIT RATE: MNI
*NOWOTNY SAYS POLICY MAKERS 'HAVE TO LIVE WITH' STRONG EURO: MNI
Which strengthened the EUR (against the JPY) and thus - in the new normal interconnected world (disconnected from fundamentals) - US equities spike.