Recession

Greenspan’s phony disinflation success led to the Fed’s embrace of fully mobilized and massively intrusive monetary policy in the guise of the Great Moderation and the wealth effects theory of financial asset levitation. In due course, Greenspan’s self-aggrandizing but purely experimental forays of massive central bank intrusion in the financial markets were supplanted by the hard-core Keynesian model of Bernanke and Yellen. Alas, they operated under the grand illusion that a domestic wage and price spiral would tell them when the domestic GDP bathtub was filled to the full employment brim, and therefore when to lift their foot from the monetary accelerator. It never happened, and they never did. The era of Lite Touch monetary policy was by now ancient history.

"Back in 2008, in the midst of a crisis of global proportions, Ernst Stavro Paulson and the enigmatic Dr.Yes brought SPECTRE out of the shadows and into the collective conscious of the world. They did so by seemingly offering a cunning solution to the fears that gripped mankind in the wake of the GFC—free money!"

"Clients are quick to point out similarities between the current low breadth environment and the narrow breadth regime that emerged during the tech bubble in the late 1990s. Our Breadth index currently equals 1, one of the lowest levels in the 30- year series. The typical episode lasted four months, with past episodes ranging from two months in 2007 to a high of 14 months during the tech bubble."

Ignorance about recessions has taken hold because of a simplistic idea that a recession is two successive quarterly declines in GDP or, more broadly, a situation where we see some, but not all, of the typical markers of recession. While the final determination of recession might be delayed by a year of more, our leading indexes have never been this weak outside a recession. If this is indeed a recession, policy makers would be remiss in assuming that this is an economic slowdown rather than a recessionary vicious cycle.

U.S. stock investors may be complacent regarding the ability of the stock market to withstand higher interest rates. Their confidence may come from the fact that, historically, markets have not peaked until 12-24 months after the Fed begins to tighten. This assumes the tightening cycle begins with the first official rate hike. But if it really began with the increase in the Shadow Rate, then a December rate hike will already be 19 months into the tightening cycle! Plus, given how overvalued stocks may currently be, and the amount of corporate debt accumulated to finance share buybacks, this bull market may be far more vulnerable than most to higher interest rates.

In very raw terms, if a man wanted to buy a house and a car in 1975 he had to work just under five years to pay for them.

If he wants a house and a car today, he has to work almost 11 years...

"It is already too late. Having delayed way beyond the point when it might typically have raised rates in previous cycles, it has allowed an Orc-like monster to incubate, hatch and emerge into the sunlight, snarling and ready to do battle."

In the next financial crisis, physical gold held outside the banking system in safe vaults in safe jurisdictions will prove to be a “financial cushion” to individuals, companies, pension funds, family offices,  and indeed nations.

In his rejection of an SEC settlement with Citigroup, Judge Jed Rakoff vowed to "see that the truth emerges." After presiding over the most high-profile insider trading cases since the crisis -- including Raj Rajaratnam and Rajit Gupta -- Judge Rakoff has come to symbolize the mantra that "nobody is above the law." In determining that Valeant and hedge fund manager Bill Ackman must face insider trading charges for their failed takeover of Allergan, U.S. District Judge David Carter may be the "new Rakoff."

The world of Bubble Finance economies created by the Fed and other central banks is fundamentally different than that prevailing under the “Lite Touch” monetary policies which preceded the Greenspan era. The problem today is that the PhDs running the Fed have an economic model which is a relic of the Lite Touch era. It is not only utterly irrelevant in today’s casino driven system, but is actually tantamount to a blindfold. It causes them to look at a dashboard full of lagging indicators like jobs and GDP components, while ignoring the explosive leading indicators starring them in the face on CNBC. The clueless inhabitants of the Eccles Building do not recognize that they have created a world in which Wall Street supersedes main street.

Business Inventories jumped 0.3% MoM in September (notably more than the 0.0% change expected) and the highest since June led by a surge in Retailers restocking (+0.8% despite sales being unchanged). With Sales unchanged (manufacturers -0.4%), the inventories-to-sales ratio surged to 1.38x - the highest since the financial crisis.

Amid the carnage in Macy's, Nordstrom, and JCPenney, one could be forgiven for expecting a weak retail sales print and sure enough...

“In metros with high-income growth, unaffordable mortgage payments can become affordable within a few years. For millennials, buying an unaffordable Home isn’t always a bad idea."

Something odd is happening in the US labor market.