Goldman Sachs, like most of the mainstream economists believes today's FOMC statement will likely be "broadly neutral" with no indication of sooner rate rises than expected (despite what we have noted as the timing not being better), some modest upgrades to the economic outlook (to keep the "everything's good and you don't need us anymore" meme alive), and continued taper at the same pace (with maybe some acknowledgemnet of the transitory pop in inflation). UBS, on the other side, suggests there is a chance of some FOMC surprises with Janet Yellen pulling a semi-Carney as Citi's Steven Englander has previously noted "the Fed needs more volatility in order to maintain its illusion of omnipotence."
In a day and age in which corporations rule the world, the brutal Al-Qaeda spin off known as ISIS is learning from the best, and as part of its credentialising and image-building has done something only major corporations do at the end of every year: it has issued annual reports for the past 2 years (unaudited). That's right: as the FT reported earlier, "Since 2012 the Islamic State of Iraq and the Levant, (known as Isis) has issued annual reports, outlining in numerical and geographical detail its operations – the number of bombings, assassinations, checkpoints, suicide missions, cities taken over and even “apostates” converted to the Isis cause."
You can ignore and even downplay for a while, but eventually and as sure as the fundamental law of nature that everything has a cost....
With newsflow out of Iraq having slowed down as has the ISIS offensive, which appears to have been halted north of Baghdad, the market now shifts its attention to the Fed's two-day meeting which begins today and continues through tomorrow afternoon, when it will be leaked by media outlets to ultra-wealthy speculators and robots, breaching the embargo (in exchange for a hefty payoff) some 10 minutes before 2 pm.
"In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability – problem areas where America will have neglected, denied, or delayed needed action.” - The Fourth Turning - Strauss & Howe – 1997
As the global election cycle begins to slow down we turn our attention back home to give investors a working roadmap for the Midterm Elections in the US.
It's possible to describe Rep.Eric Cantor as a serial sell-out. But that would be giving an unprincipled politician driven by an unalloyed ambition to climb the greasy pole of Washington power too much credit. In truth, Cantor never campaigned for any recognizable principle; he merely maneuvered his way to the top of the House GOP hierarchy by following in the tawdry footsteps of modern GOP bagmen like Tom DeLay and Roy Blunt. Eric Cantor made a career of milking the Warfare State and pandering to Wall Street. This brought him nearly to the top of the Washington heap. But in the end, it did not fool his constituents. And most certainly it set back the conservative cause immeasurably.
Volatility is depressed, micro dominates and as Goldman notes several of the key emerging themes of the last few years have lost their discovery value. There are many questions that investors should be asking as the second half of 2014 approaches (and the much hoped for 'recovery' picks up steam); but perhaps the most important one given the taper is "In a sea of liquidity, what happened to all the liquidity?" The supply of stock and volumes are down. Did you know Verizon’s current market cap is larger than Russia’s float?
Anxiety over the Qingdao port and warehouse probe is slowly but surely creeping through all the commodities that were used in China's commoditty-financing-deals (as we noted here). With Copper hurting (and gold picking up), Iron Ore prices have tumbled to 21-month lows (near the lowest since 2009) as 'real' demand slows as the economy slows and 'financial' demand is crushed as "banks are more vigilant about iron ore financing." As Bloomberg reports, investigators are trying to determine if individual batches of commodities were used multiple times to secure loans. This is making banks nervous (shadow and non-shadow) and while iron ore inventory is falling, prices are adjusting lower rapidly as traders anticipate "financing problems forcing traders to dump ore."
The numbers that you are about to see are likely to shock you. They prove that the global financial Ponzi scheme is far more extensive than most people would ever dare to imagine. The truth is that our financial system is little more than a giant pyramid scheme that is based on debt and paper promises. It is literally a miracle that it has survived for so long without collapsing already. But at some point a day of reckoning is coming, and when it arrives it is going to be the most painful financial crisis the world has ever seen.
- Iraqi Drama Catches U.S. Off Guard (WSJ)
- Al-Qaeda Offshoot on NATO Border Threatens Turkish Rally (BBG)
- It's just the snow, people: U.S. Economic Recovery Looks Distant as Growth Lingers (NYT)
- Freed Taliban leaders may remain in Qatar beyond one-year travel ban (Reuters)
- BNP Paribas Executive Chodron de Courcel to Quit Post (WSJ)
- Greenmail is back (WSJ)
- Facebook Places Multiple Bets to Win Messenger Wars (BBG)
- ECB easing to benefit Ukraine, Russia corporate bonds (Reuters)
- Rome Shows the World How Not to Run Bike-Sharing Program (BBG)
Corporate “inversions” have been around since the 1980s in various forms but have come back into focus recently, but as Goldman's Alec Phillips notes have recent regained popularity as world tax rates grow ever more divergent. On the back of several high profile 'proposed' deals, a certain level of hysteria has taken hold amid potential targets but the issue has drawn enough attention that politicians are once again considering intervening. As Goldman warns, however, companies considering these transactions may now hesitate in light of the possibility that the expected tax benefits will be undone (and expect broad-based tax reform to reduce, if not eliminate, any advantages).
In his first press conference since the loss last night, it is widely expected that Eric Cantor will resign as House Majority Leader (on July 31). Of course, we are sure Goldman Sachs and BlackRock are fascinated to hear how they are going to get their money back?
As we showed yesterday, with the shocking departure of Eric Cantor from the political scene, perhaps no firm is more disappointed that it will not generate the hoped 77,500%+ IRR on its "investment" in the Republican politician than Goldman Sachs. Indeed, of all 435 representatives in the House, Cantor was the one person that Goldman had contributed the most cash to in 2014. But before you panic just how will Goldman survive, here is a list of all the other representatives and senators that Goldman has invested its hard stolen earned cash in just the 2014 year alone.
Brazil wins the world cup... according to Bloomberg, 171 economists, and Goldman Sachs. They beat Spain, Germany, or Argentina in the final respectively but as one survey participant noted, "It’s kind of hard to bet against Brazil -- they have home advantage, the climate, crowd and recent record." Goldman's 'model' implies a 48.5% chance that Brazil wins it all (with Argentina 2nd most likely to win at 14.1%). While all eyes will be on Ronaldo, Goldman's Dream Team is dominated by 3 Brazilians (including Neymar of course) but based on the 6-factor Poisson distribution-based regression model, Goldman predicts the scores of every game (and Bloomberg's interactive graphics allow to create your own bracket). If only the Brazilian people were so certain about their futures...