While much of the panel's discussion is the somewhat typical growth, recovery, global diversification mantra of a homogenized investment community, The Milken Institute's 'Reading The Tea-Leaves' panel was dominated by some deeper thoughts from John Rutledge of Safanad SA. John sees the world not as a series of equilibria like any and every mainstream economist but the exact opposite with earthquakes and tsunamis capable of occurring at any time. In three-and-a-half minutes, Rutledge analogizes investing today as "living on the crust of a molten marshmallow" and notes that 'investing' to him now is "trying to figure out situations in which some stupid policy has created a big wedge between returns on different assets that causes people to redeploy capital" and that is what moves prices. Claiming that the two most destructive inventions of the twentieth century were Modern Macroeconomics and Modern Portfolio Theory (which have caused more loss of wealth than anything else he knows), the optimistic father-of-six goes on to discuss the three storm systems that must be navigated in the world currently: 1) Europe; 2) China's growth; 3) the extraordinary growth of Central Bank balance sheets. He concludes with some insights into why not to own bonds and what bonds say about scarcity of future cash-flows, and sees the greatest risk today is that "investors are mentally unprepared for the world we invest in"
UPDATE: Sell-off stalled for now as S&P caught up with risk-asset's early warning for now.
S&P 500 Futures are picking up speed to the downside on rising volume which takes it back to its 50DMA (as we note AAPL has also broken its 50DMA intraday now). Has the market finally grasped that in order for the Fed to greenlight QE stocks have.to.drop and that frontrunning QE by constantly buying stocks ahead of the ramp simply will not work? We'll know soon enough.
Likely glowing from his glorious victory (h/t Trish Regan) over Krugman in Bloomberg's recent Paul vs Paul debate, Rep. Ron Paul destroys the central-planning arrogance of Bernanke and his ilk in an Op-Ed released by the FT today.
Control of the world’s economy has been placed in the hands of a banking cartel, which holds great danger for all of us. True prosperity requires sound money, increased productivity, and increased savings and investment. The world is awash in US dollars, and a currency crisis involving the world’s reserve currency would be an unprecedented catastrophe. No amount of monetary expansion can solve our current financial problems, but it can make those problems much worse.
In celebration of the one-year anniversary of the Corzining of Osama, a stash of letters uncovered during the raid that killed the Al Qaeda mastermind uncover a truly terrifying 'grand plan'. As the NY Daily News reports, Bin Laden planned to target more airplanes at Petraeus and President Obama with the cunning plan that a successful assassination would propel an "utterly unprepared" Vice President Biden into the Oval Office - and send the US spiraling into chaos." In the aftermath of Solyndra and the realization that Biden's key economic advisor was Jon Corzine this actually sounds like a brilliant plan. The full list of 17 Bin Laden letters can be found here with English translations and the Combating Terrorism Center's report is embedded below. Luckily for all of us, it appears the weakened Al Qaeda had no means to pull off such high profile attacks and Osama even reflected on his frustration with the inability of spinoff terror groups to inflict real damage on the West. Oorah!
While much has been written on the revisions, adjustments, and just-plain-guesses that make up the BLS' non-farm-payroll data, the frustration levels are building in the Bay Area as Charles Biderman provides the most in-depth discussion of why we need a better press corps. The simple truth, as Charles notes, is that even the BLS doesn't believe its own hype (in its footnotes) and while mainstream media and talking heads will quote the unemployment rate or NFP change as if it was transcribed by the hand of God, it is in fact an extremely ill-formed, very narrow survey with such huge statistical noise as to be entirely useless. However, while every human should watch this brief clip before buying that 100-lot ES milliseconds after the release tomorrow, we suspect, as usual, it will be algos-gone-wild no matter how many sigma we beat or miss.
"I would very much like to learn your thoughts on what careers may be viable for our children. With the future likely to change our lives so dramatically, where do you see opportunities for some form of career growth and some form of stability?"
- Let go of old models of financial security. Do not assume a government job means 30 years of security and a fat pension thereafter. That's the past, not the future.
- Assume monopolies and cartels imposed by the State will be disrupted and implode. The key example here is the sickcare system imposed by the State. For decades people have seen sickcare expand year after year, and so it seems sensible to assume that joining healthcare a.k.a. sickcare was a path to security.
- The best career strategy going forward is to assemble multiple skillsets. What we know is that current models will be disrupted, but we cannot know the future. Thus we cannot know which skillsets will be demand. That may change constantly; "security" will flow not from clinging to failing institutions for 30 years but by being flexible and adaptive.
This weekend the Greeks will go to the polls - and with support for the two main parties (New Democracy - center-right; and PASOK - socialist) at historical lows (and the share of protest and extremist votes at historical highs) - is Greece about to become Belgium. This is likely exactly what the bankers want - a relatively ungoverned nation to pilfer - but as the WSJ reports, against a backdrop of economic crisis, a 'failed' election is expected to usher in such political instability that officials from the country's major parties are planning for another possible election within months. Can they break Belgium's record-breaking run of not having an official government or will the Greeks transform their economy with Greek Fries, Greek Beer, and Greek Chocolate? At the moment, New Democracy is widely expected to win the elections, without however securing the majority in parliament and even in the case of a coalition with PASOK the two parties would not have a majority in parliament. The problem, of course, is that many of the extreme-left and extreme-right minority parties (who are likely to get seats) advocate the renegotiation of agreements with official sector creditors, a rejection of austerity measures, or even leaving the euro altogether. Credit Suisse provides a succinct preview of the Greek elections and three scenarios (bad, badder, baddest) that the post-election EU/IMF-dependent nation faces with color from UBS on what happens if/when Greece fails to deliver on its EU/IMF obligations as appetite for their demands is very likely to wane post-election - no matter what percentage of Greeks want to remain in the EU.
Confused by the latest flop in US foreign policy hyporicy (not to mention China's domestic) involving blind Chinese dissident Chen Guangcheng, whom America (usually so very strongly in favor of human rights, except when push comes to shove), sold down the river? Fear not, because here, courtesy of Taiwan based cartoon outfit NMA World Edition, is an abbreviated version for dummies and intellectuals alike, explaining everything one needs to know about this story in 135 seconds.
Those calling for taxing the richest more are not doing the same cost-benefit analysis I am doing that suggests that raising taxes won’t raise more revenue. But they’re not unfairly looking for a scapegoat, either. While probably the greatest culprits for the problems of recent are in government (Bush, Greenspan, Obama, Bernanke) Americans are right to be mad at the rich.
This isn’t about tax. This is about jobs, and growth. The rich, above and beyond any other group have the ability to ameliorate the economic malaise by spending and creating jobs, creating new products and new wealth. The top 1% control 42% of all financial wealth. But that money isn’t moving very much at all— the velocity of money is at historic lows. It should not be surprising that growth remains depressed and unemployment remains stubbornly high.
While normally we stay away from outright political commentary especially of the kind that has no direct relation to finance or the economy, the fact is that if the US had a functioning, uncompromised, uncorrupt, and effective Justice Department, much of what we see every day on Wall Street would be vastly different since if crime did indeed have punishment, then a vast portion of the questionable behavior that is exhibited by financiers would have been eliminated long ago. Which is why we find the news just released from The Hill that "Rep. Darrell Issa (R-Calif.) has circulated a draft copy of a resolution that would hold Attorney General Eric Holder in contempt of Congress" particularly relevant. For it is none other than Holder's complete lack of involvement and intervention to outright daily crimes conducted in the financial world that is as much a reason for the deplorable economic state of this country and the world, as are all those other factor extensively discussed in books and documentaries each and every day.
There are only a few market prognosticators who can look to the stars for sage advice and not come away being giggled at. Art Cashin, UBS venerable trader-in-chief, notes that this weekend will see the biggest full moon of the year from the perspective of the Earth. This so-called 'Supermoon' will exert 42% more tidal force than normal and given the human body is 70% water, one can only imagine the bipolar impacts that this extra-terrestrial 'pressure' will create on the tiny minds of traders. What is more spooky is the fact that there is an unusual astrological configuration, not seen since 9/11, also occurring this weekend and rather worryingly The Times of Israel is noting the call-up of Emergency Israeli Troops in response to the worsening situation in the Sinai. So our minds will be wondering from an out-of-world experience and at the same time developments in the already unstable Middle East crank up one more notch on the Spinal-Tap-amplifier of sabre-rattling.
There are deepening concerns in Switzerland about the debasement of the Swiss franc. The SNB has pegged the franc to the euro and is engaged in the same ultra loose monetary policies as the Federal Reserve, BOE and the ECB. The SNB won't allow the franc to rise above an arbitrary “ceiling” against the euro Walter Meier himself said on April 5 that the SNB is ready to buy foreign currencies in "unlimited quantities." Meier’s comments regarding the vastly depleted Swiss gold reserves came after Bayram Dincer, an analyst at LGT Capital Management in Pfaeffikon, Switzerland, called on the SNB to disclose where its gold is stored, in a letter published in the respected Swiss publication Finanz und Wirtschaft. Meier said that the SNB holds its physical gold reserves “domestically and internationally, with provisions for a crisis scenario being a main factor in the decision for this decentralized storage”. “The criteria for the storage countries are: appropriate regional diversification, exceptionally stable economic and political environments, immunity for central bank investments, access to a gold market where stocks could be liquidated if necessary,” he continued. He concluded by saying that “such a decentralized storage is still preferable to an exclusive storage in Switzerland. The listed factors can change over time and that’s why the central bank is reviewing and adapting the storage locations periodically.” The SNB’s monetary policies have been imprudent in recent years and their gold sales have lost the Swiss people a lot of money.
Bloomberg's weekly Consumer Comfort Index just had its largest two-week drop in over 13 months after tracking stocks up to near four-year highs in early April. These levels are still markedly negative compared to the zero print in early 2007 and while the index has generally tracked sideways, the consumer finally seemed to go all-in when Europe's LTRO and Fiscal Compact was announced and the world's coordinated easing occurred starting in November of last year. However the divergences within the data are growing rapidly with high-income individuals near four-year highs in terms of their comfort as low-income individuals at near record-lows for comfort. The comfort spread between rich and poor has not been this wide since before the crisis and yet so many expected 'change'.
Two days ago, the Manufcaturing ISM soared, trouncing expectations, in a very perplexing print because as the very next day we learned via ADP that manufacturing jobs dropped by 5,000 in April. Today, however, things are back to normal as the indicator that tracks the far greater component of US GDP: the Services ISM, just printed at 53.5, missing expectations of 55.3 wildly, and down from the previous print of 56.0. This was the biggest miss in 12 months, and the lowest print since December; it also printed below the lowest Wall Street forecast. That this should not be surprising to anyone we hope is a given: weak ADP but strong Claims (and now a drop in the employment Index); soaring Manufacturing but plunging Services, China expanding but China contracting, and so on: when we said that "Baffle them with Bullshit" is an official policy we were not joking. Remember: when in doubt ask: what would Schrodinger's cat do?