United Kingdom

Today US activity will be very light given the Columbus Day holiday. As DB summarizes, we have a relatively quiet day for data watchers today but the calendar will pick up tomorrow and beyond with a big focus on inflation numbers amongst other things. Indeed tomorrow will see the release of Germany’s ZEW survey alongside CPI prints from the UK, France and Spain. Wednesday’s data highlights will include the US retail sales for September, the Fed’s Beige Book, CPI readings from China and Germany, US PPI, and the NY Fed Empire State survey. Draghi will speak twice on Wednesday which could also be a source for headlines. On Thursday, we will get Industrial Production stats and the Philly Fed Survey from the US on top of the usual weekly jobless claims. European CPI will also be released on Wednesday. We have the first reading of October’s UofM Consumer Sentiment on Friday along with US building permits/housing starts. Yellen’s speech at the Boston Fed Conference on Friday (entitled “Inequality of Economic Opportunity”) will also be closely followed.

Yesterday, in a periodic repeat of what he says every 6 or so months, Jamie Dimon - devoid of other things to worry about - warned once again about the dangers hidden within the shadow banking system (the last time he warned about the exact same thing was in April of this year). The throat cancer patient and JPM CEO was speaking at the Institute of International Finance membership meeting in Washington, D.C., and delivered a mostly upbeat message: in fact when he said that the industry was "very close to resolving too big to fail" we couldn't help but wonder if JPM would spin off Chase or Bear Stearns first. However, when he was asked what keeps him up at night, he said non-bank lending poses a danger "because no one is paying attention to it." He said the system is "huge" and "growing." Dimon is right that the problem is huge and growing: according to the IMF which just two days earlier released an exhaustive report on the topic, shadow banking (which does not include the $600 trillion in notional mostly interest rate swap derivatives) amounts to over $70 trillion globally.

Having tried (unsuccessfully) to break up the pro-democracy protesters in the heart of Hong Kong using local triad gangs (as opposed to the optics of actual police), it appears the Chinese government is rolling back from its "wait-and-see" approach and becoming more aggressive once again. Hong Kong's Chief Executive Leung Chun-ying, as DPA reports, demanded protesters end their blockade of major roads by Monday, or the government will take "all necessary measures to restore social order." Tensions continue to rise, with clashes breaking out sporadically, as the protesters have broken off talks with the government. As fears of another Tiananmen square debacle loom, former Hong Kong governor Chris Patten noted, "I cannot believe it would be so stupid as to do anything like send in the army."

You have heard of the "No Fly List", right?  Well, now the Tories are pledging that if they win the next election in the UK they will establish a list of “extremists” that will have to have their social media posts “approved in advance by the police” before they post them.  There are also plans to ban “extremists” from broadcasting and speaking at public events.  The stated goal of these proposals is to crack down on terrorism, but in the process the civil liberties of the British people are going to be flushed down the toilet. To help explain, below is a list of 72 types of Americans that are considered to be “extremists” and “potential terrorists” in official U.S. government documents.

• European Bond Yields Go Negative (WSJ)
• Traveler from Liberia is first Ebola patient diagnosed in U.S. (Reuters)
• Hong Kong Protesters Step up Pressure on Leung to Quit (BBG)
• JPMorgan to face U.S. class action in $10 billion MBS case (Reuters)
• Turkey mulls military action against Islamic State (Reuters)
• Singapore Home Prices Fall for Fourth Straight Quarter on Curbs (BBG)
• Italy's Economic Woes Highlight Dilemma for European Central Bank (WSJ)
• Advanced iOS virus targeting Hong Kong protestors (Reuters)
• Fed Scrutiny of Leveraged Loans Grows Along With Bubble Concern (BBG)
•  Mosquito Virus That Walloped Caribbean Spreads in U.S. (BBG)

Even though it ultimately failed at the ballot box, the recent campaign for Scottish independence should cheer supporters of the numerous secession movements springing up around the globe. The growth of support for secession should cheer all supporters of freedom, as devolving power to smaller units of government is one of the best ways to guarantee peace, property, liberty — and even cheap whiskey!

Death and taxes... but mostly taxes...

Some British newspapers have declared that “the dream is over” for Scottish independence. That seems hardly likely, unless by “over,” the newspapers mean “over for the next few years.” Europe-wide, the drive for more regional independence and autonomy will only continue to grow as economies stagnate, and as elites from Brussels or Rome or Madrid continue to maintain that they know best. Eventually, the promises of the centralizers will fall on very deaf ears. Even without a majority vote for secession, the campaign for separation from the United Kingdom has already provided numerous insights into the future of secession movements and those who defend the status quo.

“A nation becomes too big when it can no longer provide its citizens with the services they expect – defence, roads, post, health, coins, courts and the like – without amassing such complex institutions and bureaucracies that they actually end up preventing the very ends they are intending to achieve, a phenomenon that is now commonplace in the modern industrialized world." The answer to the ‘too big’ problem lies not in ever greater union, but in division.

8 in 10 "Yes" voters said they were motivated more by 'hope' than 'fear'. 6 in 10 "No" voters said they were motivated by 'fear' of independence and the "No" vote was almost entirely secured by overwhelming support from those aged above 55. So in a nutshell, old people filled with fear blocked independence. Going forward, the older generation problem will naturally resolve itself. So we know that the youth will be deciding the future. Thus, the real question becomes, what will influence the youth?

Given the scale of indebtedness in the UK and still very high current account deficit, the pound remains vulnerable to a currency crisis. George Soros and others may still be sizing up another opportunity to break the Bank of England. Another run on the pound has been postponed ... for now ...

It has been quite an eventful week between Scotland's battle over independence, the Federal Reserve's FOMC announcement and the markets making new all time highs. The FOMC announcement was more comedy than anything else as the continued facade of the Fed's forecasting capabilities was revealed, it appears the biggest factor in the world of investing and for this weekend's list of "Things To Ponder" we have accumulated a few reads relating to the Fed.

While Scotland was busy concluding the count of its votes for or against independence, Royal Air Force fighter jets based out of the northern Scottish base in Lossiemouth in Moray, were scrambled to identify and intercept two airplanes which subsequently were revealed to be Russian Tu-95 Russian "Bear H" strategic bombers, that were spotted in international airspace although the exact location of the encounter has not been disclosed. As the RAF later clarified in a statement, the aircraft did not enter UK airspace. 

• Scots spurn independence in historic vote but demand new powers (Reuters)
• Salmond’s Journey as Scotland’s Leader Ends Short of Destination (BBG)
• European Stocks Rally to 6 1/2-Year High on Scottish Vote (BBG)
• Jack Ma Planning Personal Roadshow With Clinton to Immelt (BBG)
• Some consumers say Apple is losing its 'cool' factor (Reuters)
• Gold IPhones at $3,600 as China Delay Fuels Black Market (BBG)
• This Man's Job: Make Bill Gates Richer (WSJ)
• Mom-and-Dad Banks Step Up Aid to First-Time Home Buyers (BBG)
• France says it launches first air strikes in Iraq (Reuters)

So much for any Scottish referendum vote "surprise": the people came, they voted, and they decided to stay in the 307-year-old union by a far wider margin, some 55% to 45%, than most polls had forecast, even as 3.6 million votes, a record 85% turnout, expressed their opinion. The gloating began shortly thereafter, first and foremost by David Cameron who said "There can be no disputes, no re-runs, we have heard the settled will of the Scottish people." Queen Elizabeth II, who is at her Scottish castle in Balmoral, is expected to make a rare comment on Friday. But while a No vote was where the smart betting money was ahead of the vote anyway, and is thus hardly a surprise, the most curious thing overnight was the complete roundtrip of cable, which was bought on the rumor and then sold off on the news, roundtripping by nearly 200 pips.