Nike recently published a series of ads declaring “winning takes care of everything,” in reference to Tiger Woods’ recapture of the world #1 golfer ranking. The slogan went over with certain critics like an illegal ball drop. Many economists insist that “economic growth takes care of everything,” and the related debate is no less contentious than the Nike ad kerfuffle. Listening to some pundits, you would think there’s one group that appreciates economic growth while everyone else wants to see the economy crumble. It seems to me, though, that growth is just like winning – there’s no such thing as an anti-winning camp, nor is there an anti-growth camp. More fairly, much of the growth debate boils down to those who think mostly about long-run sustainable growth and those who advocate damn the torpedoes, full speed ahead growth. I’ll break off one piece of this and consider: How much of everything does growth take care of?
In remarks given late last week to the curiously named United States Institute for Peace, the head of the Treasury’s Financial Crimes Enforcement Network (FinCEN) vociferously denied any attempts at regulating digital currency... specifically Bitcoin. But that doesn’t mean they can’t spread fear, uncertainty, and doubt. Bitcoin, being completely decentralized, is nearly impossible to regulate. And the government at least seems to understand this point. Which is why the director so emphatically denies attempting to regulate the digital currency. But in this short 4-page speech, the Director twice made a connection between Bitcoin and (you guessed it) terrorism. Twice more connected Bitcoin to those who would exploit children. And four times linked digital currency to ‘criminals’ in general. It’s certainly enough to scare most people away.
"The power of the press (and the nouveau press)! Following a very solid open, stocks maintain their early gains until FT Harding hits the tape with an article suggesting a signal from Bernanke this Wednesday that the taper was drawing near – in contrast to the more dovish Hilsenrath last week. Stocks drop nearly a percent. Then via Twitter Harding casts doubt on his own predictions and more than half of those losses are reversed. The price action just reinforces how important the FOMC Wednesday will be."
Whatever the deteriorating economy could not achieve (courtesy of Ben Bernanke's relentless bubble blowing and pumping of the S&P 500-driven "wealth effect" distraction) for the past four years, one NSA whistleblower succeeded in a few short days, when earlier today, CNN - hardly a media known for its criticism of the administration - released a new poll according to which not only did Obama's approval rating drop by 8% in the past month, "one of the sharpest, fastest plunges in his presidency" to 45% from 53% (the first time the majority had a negative opinion of the president), not only did the majority find Obama to not be honest and trustworthy for the first time ever in his presidency, but Obama's support with one of his core constituencies - young Americans under 30 - imploded, plunging by 17 points. CNN adds: "That's particularly discouraging heading into 2014 because Democrats have felt they have a lock on the youth vote after the 2012 elections. "The drop in Obama's support is fueled by a dramatic 17-point decline over the past month among people under 30, who, along with black Americans, had been the most loyal part of the Obama coalition," CNN Polling Director Keating Holland said."
In an apparent effort to "facilitate peace talks," Al Jazeera reports that the Taliban - the armed Islamic fundamentalist group - will open a political office Doha, Qatar tomorrow.
- *AFGHANISTAN'S TALIBAN TO OPEN OFFICE IN QATAR TOMORROW: JAZEERA
- *JAZEERA CITES UNIDENTIFIED SOURCES ON TALIBAN POLITICAL OFFICE
Until earlier this year, Afghan President Karzai was strongly opposed to the Taliban having a meeting venue outside Afghanistan, but the US has pushed for the Taliban to be present at the negotiating table as Washington prepares to withdraw its troops from Afghanistan in the next two years. This opening comes on the heels of accusations (here and as we discussed here) that Qatar (and Saudi Arabia) is reviving al-Qaeda in Iraq and now Syria.
We have discussed the idea of a VaR shock (driven by Abe/Kuroda's loss of control) a number of times recently but as Saxo's Steen Jakobsen fears, reality is about to hit as the marginal cost of capital normalizes. The world, so far, has been kept in artificial equilibrium by the way quantitative easing (QE) and fiscal policies bring support and endless liquidity to the 20 percent of the economy that mostly comprises large and already profitable companies and banks with good credit and good political access. The premise for supporting these companies is based on the non-existent wealth effect which unfairly culminates in supporting the haves to the detriment of the have-nots. However, as Jakobsen notes below, things are rapidly changing; the recent increase in yields has happened despite no real improvement in the underlying data. The the next few days are potential major game changers – the bloated VaRs will make people hedge and over hedge, and the normalization process of rising risk premiums and higher real rates (higher yield plus lower inflation) will lead to more selling off of those trades that have "worked so far"... and increase volatility in their own right.
Equity markets were very much in a land of their own relative to broad risk asset classes all day until the FT's Harding "mo' Taper" memo hit and slammed reality back into the herding masses. Still convinced that the Fed will 'only' taper if the data confirms it, we suspect the broad market is missing the signals from broken markets and frothy levels that mean the Fed will use the modest improvements as a crutch upon which to jawbone tapering into our minds. Today's price action was - in the words of the great Bob Pisani, "just silly." A ramp out of the gate following Japan's lead which followed a Hilsenrath-inspired ramp-job from Friday combined with a beat for NAHB (and Empire Fed) sent all the high-beta into overdrive (builders +2.2%) - but nothing else was really moving (FX was relatively flat, bonds went sideways, commodities wriggled in a small range). The Harding hit and we gave back all the post-Hilsenrath gains, 330-ramped to VWAP and held it magically into the close (though the USD ended at its lows of the day, bond yields at their highs, and credit markets at their lows).
The impact of substantially higher interest rates are not good for the economy or the financial markets going forward. In the short term consumers, and the financial markets, can withstand small incremental shifts higher in interest rates. There is clear evidence historically to suggest the same. However, sustained higher, and rising, interest rates are another matter entirely. Before we get too excited, it is important to keep in perspective the recent "surge" in interest rates that has gotten the market's attention as of late. In reality, this is nothing more than a bounce in a very sustained downtrend. While there is not a tremendous amount of downside left for interest rates to go currently - it also doesn't mean that they are going to substantially rise anytime soon. Weak economic growth, an aging demographic, rising governmental debt burdens and continued deflationary pressures can keep interest rates suppressed for a very long time. Just ask Japan.
A sense among investors that the global economy is unraveling has injected tremendous volatility into the markets. As Bloomberg's Rich Yamarone notes, if the global equity market decline is not a “Sell in May” event, but the beginning of a great unwinding, then the economy, skating on thin ice, may be even more susceptible to recession. However, most of the US equity disconnect from the reality of weak data (and other markets) can be laid at the feet of the Fed's ever-generous monetary policy. However, given all of this 'weakness' - or missing of Fed benchmarks that we discuss below - that the Fed is well aware of, we ask again, why would so many members have been out discussing 'Taper' if it were not due to their concerns of broken markets and bubble conditions.
It seems not only the entire developed world is sick and tired of Hilsenrath's "leaks" which have now become so grotesquely self-contradictory, not even Hilsenfollowers can make out the Hilsenfact from the Hilsenjoke. So it appears the Fed has now picked the FT as its interim pass through vehicle: "Ben Bernanke is likely to signal that the US Federal Reserve is close to tapering down its $85bn-a-month in asset purchases when he holds a press conference on Wednesday, but balance that by saying subsequent moves depend on what happens to the economy."
There has been considerable throughput of gold in western capital markets, with substantial buying from all round the world following the April price crash. The supply can only have come from two sources: the general public, or one or more governments. It really is that simple. Two months later the gold price has only partially recovered, so physical supplies have continued to be made available. Physical demand cannot have been entirely satisfied by ETF liquidations, confirming governments are involved. This article looks at the dynamics of the gold market around this event and the implications.
With the meaningless focus on such distracting noise as daily POMOs, will/won't the Fed taper, how many shorts will the Fed's Markets desk squeeze today, and how massive will the second Fed housing bubble be, it is easy to lose sight of the big picture, namely just where is the debt juggernaut that is the US, heading? Conveniently, the US debt clock has a "time machine" function that extrapolates, at current rates of change, what the key metrics behind the US economic facade will look like.