Wall Street Journal

Having been 'snubbed' by the new Saudi King Salman, it appears the uneasy relationshipo with our 'allies' in The Gulf is ebbing. In what the State Department will, we are sure, just brush off, Politico reports that the king of Bahrain has apparently also snubbed President Barack Obama, preferring instead to attend a horse show with Queen Elizabeth. 

China has officially entered the realm of "unconventional" monetary policy, joining the Fed, the ECB, the BoJ, and a whole host of other global central banks in an attempt to bring the supposedly all-mighty printing press and the unlimited balance sheet that goes with it to bear on subpar economic growth. We suspect the results will be characteristically underwhelming (at least in terms of lowering real interest rates, although in terms of boosting risk assets, the results may be outstanding) meaning it's likely only a matter of time before LTRO becomes QE in China just as it did in Europe.

Amtrak Regional 188, with over 200 passengers aboard, was traveling at 106 mph just before "the entire train derailed" in Philadelphia, federal investigators said Wednesday, according to NBC News, more than twice the speed limit at the curve where it hurtled off the tracks. With the death toll now raised to seven, and officials still unable to account for everyone on board, Philadelphia Mayor Michael Nutter exclaimed, "I don't believe that anyone standing here today has any memory of a derailment of this kind in 50 years," and judging by the following clip - we are stunned the fatality count was so low.

What Could Possibly Go Wrong?

While apparently the US does not have its hands full already with orchestrating (and profiting from) two proxy regional wars, one in Ukraine and one in the Middle East, and feels compelled (by shareholders of US "defense" companies) to prove to the world it has long since lost its globocop status when China roundly ignores American threats, China wasted no time to do just that and overnight Beijing strongly condemned a proposed U.S. military plan to send aircraft and Navy ships near disputed South China Sea islands to contest Chinese territorial claims over the area. It didn't end there and China escalated verbally to a near breaking point when Beijing urged “relevant countries to refrain from taking risky and provocative action.”

Just days after Japanese PM Shinzo Abe leaves Washington (having stepped up his nation's military assertiveness), The Wall Street Journal reports that the US Secretary of Defense has asked staff for military options in the South China Sea (as we have detailed China's land reclamation efforts): U.S. MAY USE MILITARY TO CONFRONT CHINA IN SPRATLY ISLANDS DISPUTE: WSJ Having ironically commented on China's "bullying," it appears Nobel-Peace-Prize winner President Obama is preparing for an even bigger objective, amid China's rising threat to USD dominance (with Yuan liberalization and AIIB success).

What is extremely clear is that there is something amiss with the statistical headline employment and economic data. While there are indeed pockets of improvement, which should be expected following a recessionary contraction, there is a lack of widespread recovery. That sentiment is clearly reflected in every major poll of American's over the last year. What is important is that there is a clear disconnect between the financial markets, statistical economic headlines, and the reality of the vast majority of American consumers. So, riddle me this - what happens when that disconnect is eventually resolved?

Moments ago, in an embarrassing setback for the president, Senate Democrats in a 52-45 vote - short of the required 60 supporters - blocked a bill that would give President Barack Obama fast-track authority to expedite trade agreements through Congress, a major defeat for the president and his allies who "say the measure is necessary to complete a 12-nation Pacific trade deal that is a centerpiece of the administration’s economic agenda." But don't count it out yet: the WSJ cites Mitch McConnell who told reporters shortly before the vote, which he expected to lose, that “This issue’s not over" adding that "I’m hopeful we’ll put this in the win column for the country sometime soon.”

Whether it is more posturing ahead of OPEC's June meeting is unclear but the message from 'sources', according to The Wall Street Journal is "OPEC won’t agree to go lower," with regard global market share (which has fallen from more than 50-% to just 32% currently). The cartel's latest strategy report forecasts oil prices won't reach $100 - “$100 is not in any of the scenarios,” in the next decade (and could drop below $40) with its most optimistic scenario $76 in 2025 (which only Qatar and Kuwait can cover expenditures with). “If they want to sustain the organization, they have no choice,” but to reintroduce production quotas, adding any concession by stronger members would be temporary.

"When a Chinese honor guard joins a military parade in Russia’s capital this weekend, watched by China’s President Xi Jinping, it will mark more than just a symbolic recognition of the two countries' contributions to the Allied victory in 1945... They've basically come to a consensus that despite their differences over some national interests, they really face the same common enemy..."

Amid tense negotiations between Greek PM Tsipras, the IMF, and EU creditors, some officials say the chances of an agreement have increased materially since Yanis Varoufakis was sidelined after infuriating his eurozone counterparts in Riga last month. Now, just when there appeared to be some hope that Athens may avert a catastrophic default, Varoufakis has reportedly distributed a new "blueprint" for Greece that has little in common with the plan advanced by the country's reshuffled negotiating team. 

What happens is that economic growth eventually runs into limits. Many people have assumed that these limits would be marked by high prices and excessive demand for goods. In my view, the issue is precisely the opposite one: Limits to growth are instead marked by low prices and inadequate demand. Common workers can no longer afford to buy the goods and services that the economy produces, because of inadequate wage growth. The price of all commodities drops, because of lower demand by workers. Furthermore, investors can no longer find investments that provide an adequate return on capital, because prices for finished goods are pulled down by the low demand of workers with inadequate wages.

In the eight years that the Fed has issued GDP forecasts in the prior Fall, only once, in 2010, did the actual economic performance come in the range of its expectations. A more sinister possibility is that the Fed is not really forecasting at all but cheerleading. By forecasting strong growth, the Fed may be hoping to engender optimism, with more spending and hiring hopefully to follow. Kind of like a field of dreams recovery -- if the Fed forecasts it; it will come. Based on what we have seen thus far in the year, fantasies about a 2015 recovery should be evaporating.

Having initially missed its deadline to provide a response to Congress with regard the 2012 leak of FOMC minutes to an external newsletter writer, The Fed reluctantly admitted that none other than Janet Yellen had met with them. Today, however, as The Wall Street Journal reports, The (unaudited) Fed has agreed to furnish a congressional panel with the names of its staffers who had contact with Medley Global Advisors in the months before the leak, “with the understanding that the names will be kept confidential." So we'll happily tell you who leaked it... as long as you don't tell the public. Audit The Fed!!!