There was precious little in terms of actionable news in the overnight session, which means that, like a broken record, Europe falls back to contemplating its two main question marks: Greece and Spain, with the former once again making noises about the "inevitability" of receiving the Troika's long delayed €31.5 billion rescue tranche. The chief noise emitter was Italian Finance Minister Vittorio Grilli who said he was "confident that euro-region finance chiefs will reach an agreement on aiding Greece when they meet next week." He was joined by Luxembourg Finance Minister Frieden who also "saw" a Greek solution on November 20. Naturally, what the two thing is irrelevant: when it comes to funding cash flows, only Germany matters, everything else is noise, and so far Schauble has made it clear Germany has to vote on the final Troika report so Europe continues to be in stasis when it comes to its main talking point. In fundamental European news, there was once again nothing positive to report as Euro-area exports fell in September as the region’s economy slipped into a recession for the second time in four years. Exports declined a 1.1% from August, when they gained 3.3%. Imports dropped 2.7%. The trade surplus widened to 11.3 billion euros from a revised 8.9 billion euros in the previous month. Global trade, at whose nexus Europe has always been at the apex, continues to shrink rapidly. Elsewhere, geopolitical developments between Israel and Gaza have been muted with little to report, although this will hardly remain as is. Providing some news amusement is Japan, where the LDP opposition leader Shinzo Abe continues to threaten that he will make the BOJ a formal branch of the government and will impose 2% inflation targeting, which in turn explain the ongoing move in the USDJPY higher. This too will fade when laughter takes the place of stunned silence.
We all stand 'fingers-over-eyes and thumbs-in-ears' awestruck at the immense wreckage that the fiscal cliff titan will wreak upon the country. However, deep inside our socially responsible minds, all we can really think about is - what about my needs? The Pew Center On The States has just released a very broad and detailed look at just how the increased taxation and reduced spending will impact each and every state. Here, in two simple charts, is the answer.
Just before the US election, we laid out the details and implications of the 'other' major 'election' occurring in the world - that of China's Supreme Leader of Awesomeness. Last night the details were announced of the makeup of the new Politburo Standing Committee. As Bloomberg notes, the panel - the most powerful decision-making body in China - was reduced from nine to seven members and will be led (unsurprisingly) by Xi Jinping. Perhaps, in a lesson for our own politicians, the 'new' committee is 'bipartisan' with five members from Xi Jinping's own Jiang Zemin faction and two members from Hu Jintao's faction (more a balance of reformers and reactionaries). But, in a similar vein to the US, as The Diplomat's David Cohen notes,"If Xi is to achieve even the economic policy goals that already appear to enjoy consensus support in Beijing, he will need to find ways of overcoming some of the largest entrenched interest groups in contemporary China. To do so, he may have to set about creating new entrenched interest groups."
In his farewell address to Congress yesterday, Ron Paul blasted the dangers of what he called 'Economic Ignorance'. He's dead right. Around the world, economic ignorance abounds. And perhaps nowhere is this more obvious today than in the senseless prattling over the US 'Fiscal Cliff'. US government spending falls into three categories: Discretionary, Mandatory, and Interest on Debt. The only thing Congress has a say over is Discretionary Spending. But here's the problem - the US fiscal situation is so untenable that the government fails to collect enough tax revenue to cover mandatory spending and debt interest alone. This means that they could cut the ENTIRE discretionary budget and still be in the hole by $251 billion. This is why the Fiscal Cliff is irrelevant. Increasing taxes won't increase their total tax revenue. Politicians have tried this for decades. It doesn't work. Bottom line-- the Fiscal Cliff doesn't matter. The US passed the point of no return a long time ago.
Name the author: "No socialist has ever proposed that the “tens of millions”, i.e., the small and middle peasants, should be deprived of their property (“made to abdicate their property rights”). Nothing of the kind! Socialists everywhere have always denied such nonsense. Socialists are out to make only the landowners and capitalists “abdicate”. To deal a decisive blow at those who are defying the people the way the colliery owners are doing when they disrupt and ruin production, it is sufficient to make a few hundred, at the most one or two thousand, millionaires, bank and industrial and commercial bosses, “abdicate” their property rights. This would be quite enough to break the resistance of capital."
The key to understanding higher education in the U.S. is to grasp that it is at heart just another debt-dependent neofeudal cartel. In other words, it is just like sickcare and the national defense complex. The most implacable enemy of innovation is monopoly. If you're protected from real competition, then you have no incentive or need to innovate. That is the essence of cartel-capitalism and the neofeudal model. In the case of the higher education cartel, the Federal funding is both cash grants and loans issued to newly minted debt-serfs. Student loans cannot be discharged in bankruptcy like other debt; these loans have ballooned to about $1 trillion. This is the essence of the neofeudal model: a protected Elite parasitically extracts wealth from the debt-serfs below. Should the debt-serfs resist, the State steps in to coerce compliance. The problem with protected cartels (neofeudal fiefdoms) is that they are unsustainable.
One of the most commonly cited 'bullish' memes for stocks is the so-called Fed Model (or Equity Risk Premium) or more simply - the fact that earnings yields are not catching up to Treasury yields (i.e. why put your money in government bonds at such low rates when there is a smorgasbord of yummy equities with 'attractive' dividend yields). There are three key problems with this perspective: 1) No concept of 'risk' is imbibed in this return-based differential (as we have discussed before here and here); 2) Longer-term historical context is critical (as we discussed here - must read); and most importantly 3) Financial Repression breaks the 'Fed Model'. As Barclays shows in the following three charts (and we pointed out recently) normalization of the equity risk premium will not occur until Financial Repression ends. Brings a whole new meaning to 'Don't Fight The Fed' eh?
We hear a lot about billionaires, millionaires, and 250,000-aires but just where are all these tax-dodging blood-suckers skulking and just how many trips to Space on Virgin Galactic can the Top 25 Wealthiest people take per day?... Everything you wanted to know about the uber-wealthy is one simple mega-infographic.
Equity indices end the day marginally red as the machines tried every trick in the book to get markets up...(levering FX carry, spiking PMs, running HYG, spiking vol) to enable more selling - especially at the close when we saw notable size blocks being traded into that ramp to try and get green. VWAP was the anchor all day for S&P 500 futures (and since the synthetics are where the liquidity is - everything else followed) as stocks trend-reversed as normal on the EU close. In general volatility and high-yield credit had a significantly weak day but into the close managed to rise a little as risk-assets broadly recoupled with equity markets to close. Despite a lot of noise and chop stocks lost a little, Treasuries gained a little (-2bps on the week!), Silver scrambled back from its flash crash (but gold didn't do as well), and the USD ended today up a remarkably unchanged 0.04% (with EUR up 0.5% and JPY down 2.2% on the week). VIX ended back above 18% as AAPL just keeps falling with its 300DMA now in play.
As has been widely reported previously, while the NY Fed's deep underground gold vault remained dry during the Sandy flooding in downtown NY, one institution which got badly hurt was the DTCC, aka Cede & Co (profiled here in July of 2009 in " The Biggest Financial Company You Have Never Heard Of"), which is the entity serving as custodian of virtually every electronically traded security in the modern marketplace (equity, debt, derivative, synthetic, in fact anything which is not a physical asset in itself and is not in the hands, or safe, of the rightful owner). We put the emphasis on electronically, because DTCC is also the actual custodian of all physical proof of stock ownership, such as certificates, bond deeds, and the like. It is the largely irrelevant latter (because it has been several decades since anyone actually demanded a physical copy of the stock certificates backing their shares of company XYZ) that the DTCC got in trouble for when its securities vault got flooded, and in the process destroyed countless physical stock certificates. Note we did not use the word electronic because those are there and accounted for in numerous back up data sites, with full designation and attribution. In other words anyone who made a mountain out of this particular mole hill sadly has no idea how modern markets operate, since all that the DTCC needs to do to remedy the flooding damage is to notify transfer agents of this natural disaster, and then have duplicate stock certificates printed at a cost of 1 cent for every thousands or so print outs. Which is more or less what the DTCC also just said in its press release.
Just as our political class in the US is spending its time focused on the tax-'em-til-they-bleed side of the equation as opposed to the cut-em-to-the-bone austerity side of the income statement; so the evidence is clear (thanks to the following chart) - austerity doesn't get you re-elected. When all that matters is your next government paycheck for your 'elected' position, far from being for the people, austerity is avoided as vehemently as possible. Not only does social unrest increase (as the 'people' have become used to unsustainable standards of living) but incumbent popularty sinks - rapidly.
Someone is lying here: either Hamas did not down an IDF drone, dubbed "Sky Light", and the clip below is one big fraud (unclear why Hamas would go to such a length to fabricate a downed drone video), or the IDF is lying when it said it "confirmed" that one of its drones had been shot down. Either way, we have a feeling that the airborne campaign is coming to an end, and that Israel may and likely will escalate to a full blown land invasion very soon unless something dramatically changes. We fail to see what catalyzes this.
It would seem that the downswing into this economic slowdown has been considerably faster than many expected (as it always seems to be). Since we first introduced Goldman's Swirlogram indicator the business cycle (in May 2012), helped by the promise more and more liquidity, we have rotated remarkably from slowdown to contraction to recovery to expansion and now - in November - the leading indicators are pointing to a rapid shift into a slowdown phase. The Global Leading Indicator (GLI) is losing momentum fast and has made lower cycle highs each time since the 2009 'recovery' began. While Goldman caveats some of this with 'Sandy'-related impacts, the GLI seems to confirm what Global PMIs are hinting at - that global growth is slowing.
While we largely enjoy Dallas Fed's Dick Fisher hawkish, non-conformist thinking at the FOMC, and his willingness to come up with amusing cartoon names to explain the Fed's monetary policy (we are currently on Toy Story, and specifically Buzz "To Infinity and Beyond" Lighyear), we certainly do not miss when even said faux Fed bad cops telegraph hypocrisy so gruesome it shows demonstrates beyond a shadow of a doubt just how fake the facade of the Fed's "contrarians" truly is. To wit:
- FISHER SAYS U.S. LAWMAKERS HAVE BECOME `PARASITIC WASTRELS'
Riddle us this, Dick: just who is it that enables the US Lawmakers to fund trillion dollar deficits year after year at less than prohibitive terms, and more importantly, who is it that since 2009 has monetized virtually all 10 Year and longer gross issuance, thereby allow Congress to be a parasitic wastrel. Would you call that someone a "Wastrel enabler"?
How America's Middle Class, And Future Pensioners, Bailed Out A Generation Of Overzealous HomebuyersSubmitted by Tyler Durden on 11/15/2012 15:37 -0400
In the current Bernanke-Obama-Keynes toxic triangle (defined previously here) economy, blink too long and you will miss the latest bailout. While 4 years ago, it was America's M.A.D.-hostage taxpaying middle class that had no choice but to fund the trillions in direct Fed cash handouts and guarantees to bail out the banks, in the process saving and preserving the trillions in wealth for America's uber wealthy (the "1%") class, ever since then it has been the government's turn to rescue the country's lower and lower-middle classes (the "47%"), who, with no gun to their heads, decided to splurge during the height of the housing bubble (insurmountable mortgage payments and $0 down notwithstanding) and buy that aspirational McMansion that would make them so much more appealing in the eyes of the next door neighbor (who too could never afford their house in the first place). This has happened courtesy of a progressively more pervasive mortgage forgiveness plan, which has seen the total amount of debt funding a given home purchase shrink little by little each day. However, since there is no free lunch anywhere, certainly not when a bank's balance sheet is being impaired, like in 2008, someone is once again on the hook for this latest bailout. That someone, not surprisingly, is again America's middle class that lived within its means, that saved money while others splurged, and even put cash away for retirement, handing it over to various Pension investment vehicles.