Is 11% This Election's Most Important Number... And If Not, Why Isn't It?

With the US presidential election looming in just two months, there is hardly a state that is as critical to the outcome of who America’s next president will be, as Florida. As Bloomberg vividly summarizes, Florida - and specifically its five swing counties: Hillsborough, Orange, Pinellas, Seminole and Volusia - was the state that determined the president in all of the last 3 elections: set between the Republican-dominated North Florida and the more Democratic southern counties, these suburban communities of middle-class voters are known for their shifting allegiances. In 2008, Obama took four of the five counties to capture Florida. George W. Bush won three of the counties, and the state, in 2004. In 2000, Volusia’s vote count was disputed by Vice President Al Gore. Gore won the county yet lost Florida by 537 votes, giving Bush his first term as president. It is quite fitting then that these five counties are very much indicative of the primary malaise that has plagued the country for the past 4 years: the inability of the housing market to rebound no matter how many trillions in printed dollars are thrown at it. Which brings us to the key number that probably should (but most likely won’t in this age of ultra short-term attention spans and constant redirection and focus shifts): 11% - this is the foreclosure rate in these 5 critical counties, double what it was 4 years ago, and three times higher than the national foreclosure average rate of 3.4%. In other words, if there ever was a time and place when economics, through its sheer failure to restore “household wealth” in this most decisive region, was a key issue, now is the time.

Bernanke Discusses "Theoritcal Limit" To QE, Says Too Much "Would Hurt The Market"

Some rather unexpected rational insight out of Bernanke responding to Patrick McHenry's question on whether and how much more QE the Fed can do:

  • "I assume there is a theoretical limit on QE as the Fed can only buy TSYs and Agencies"
  • "If the Fed owned too much TSYs and Agencies it would hurt the market"

But in closing:

  • "We still have some capacity at this point."

Perhaps the market was expecting that the Fed would admit it can buy ETFs and REITs like the BOJ, or that it can sell vol into the single digits, as its New York Fed trading desk is rumored to be doing, but this is hardly the stamp of endorsement to buy any stock come hell or high water that the algos now expect out of the Fed.

Japan Machinery Orders Implode As Global Economy Grinds To A Halt

Japan's core machinery orders were expected to post a modest -2.6% drop. Instead they had a worse collapse than anything seen in the aftermath of the Fukushima disaster, plunging by a stunning 14.8% . And the kick in the groin cherry on top was the current account surplus plunged by 62.6%: consensus forecast: -14.5%. The Japanese economy has once again ground to a halt, only this time it has no earthquake or nuclear explosion to blame. This time it is the entire world's fault, where demand has collapsed proportionately. As a reminder the BOJ expanded its QE yet again on April 27. Must be time for another QE because this time will certainly be different after more than 30 years of failures.  It is time for those brilliant central planners Ph.D's to do engage in more of the same insanity that Einstein warned about decades ago. And incidentally this is not a joke: on Thursday the BOJ is expected to ease yet again. As a reminder, the BOJ already buys ETFs, Corporate Bonds, and REITs. What's left: gold?

Presenting The Fundamental Flaw In The Fed's Thinking

This one simple chart below shows what is possibly the biggest and most fundamental flaw in Bernanke's approach to spurring the economy, which to him, of course, means rising prices of risky assets, aka the stock market.

Guest Post: Inflationeering

While a welcome development (and probably even more welcome on the other side of the Atlantic) it doesn’t make up for the fact that the explosive price increases during the boom years were never included. And it isn’t just real estate — equities was another market that massively inflated without being counted in official inflation statistics. It would have been simple at the time to calculate the effective inflation rate with these components included. A wiser economist than Greenspan might have at least paid attention to such information and tightened monetary policy to prevent the incipient bubbles from overheating. Of course, with inflation statistics calculated in the way they are (price changes to an overall basket of retail goods) there will always be a fight over what to include and what not to include. A better approach is to include everything.

Here Comes The Hilsenrath Leak: "Fed Considers More Action"

Three months ago, just when things looked like they were about to turn south, the Fed's trusty mouthpiece, Jon Hilsenrath, made it clear that the market can stop falling as the Fed was "considering" sterilized QE, or more Twist, something we explained later would be impossible in the current format as the Fed would run out of sub 3 Year paper by the end of August. It did however halt the drop in stocks for a month or two until Europe became permanently unfixed. Hilsenrath then cralwed back into his WSJ cubicle. Until today: two weeks before the all critical June 20 FOMC meeting, the faithful Fed scribe has been charged with his latest leak commission: "Fed Considers More Action Amid New Recovery Doubts." And as it has been leaked (now that people have actually done the appropriate math), so it shall be.

Bank Of Japan Goes Full Tilt, Buys Record Amount Of ETFs And REITs To Prevent Market Crash

One can call the BOJ inefficient, slow and for the most part utterly worthless, but one can certainly not accuse them of lying, and beating around the bush. Because unlike all other central banks, with the BOJ at least it has been fully public knowledge that this particular central bank unlike all others (wink wink), is actively engaged in buying equity products, among them REITs and broad equity ETFs (which provide much explicit tail-wags-dog leverage and explains why the FRBNY's red phone hotline goes directly to Citadel's ETF trading desk). And buy stocks on full tilt and in record quantities is precisely what the BOJ just did, only as one can expect, with absolutely no impact on the broader stock market. Because once even the central bank is exposed as participating in the market, the element of surprise is gone, and the central bank becomes just one mark (if one with a largish balance sheet). As MarketWatch reports, "The Bank of Japan stepped back into the stock market Monday, making its largest single-day purchase of exchange-traded funds to date... The Japanese central bank said it spent 39.7 billion yen (about $500 million) buying up stock ETFs as part of its ongoing asset-purchase program, breaking a previous record of ¥28.5 billion, set on April 16. In addition to the ETF buys, the Bank of Japan also acquired ¥2.3 billion in real-estate investment trusts Monday." Too bad that this latest outright bull in a Japan store (sic) intervention had zero impact: "the move failed to prevent a sharp fall for the Tokyo equity market." But at least they are honest. Imagine the shock and horror (and complete lack of apologies to all those who have predicted just that) when the world finally gets a trade confirm-based proof that Brian Sack was indeed buying (never selling) SPYs and ES. Why everyone would be truly shocked, SHOCKED, that the Fed is nothing but another two-bit gambler in a rigged and broken casino.

Strategic Investment Conference: David Rosenberg


Stocks are currently priced for a 10% growth rate which makes bonds a safer investment in the current environment which cannot deliver 10% rates of returns. We are no longer in the era of capital appreciation and growth. The “baby boomers” are driving the demand for income which will keep pressure on finding yield which in turn reduces buying pressure on stocks. This is why even with the current stock market rally since the 2009 lows - equity funds have seen continual outflows. The “Capital Preservation” crowd will continue to grow relative to the “Capital Appreciation” crowd.... According to the recent McKinsey study the debt deleveraging cycles, in normal historical recessionary cycles, lasted on average six to seven years, with total debt as a percentage of GDP declining by roughly 25 percent. More importantly, while GDP contracted in the initial years of the deleveraging cycle it rebounded in the later years.

Overnight Sentiment: Zen-like After Initial Revulsion

Futures are unchanged after dropping steeply overnight following the Spanish re-downgrade as the Italian 5/10 year bond auction was bad, but still passed (somehow the lack of the European bond market ending is good news). This is ironic with Europe very much on edge following the release of very disappointing EU data, with German confidence, French consumer spending, Spanish unemployment all worse than estimates. Offsetting all of the negativity to some extent is the gross JPY10 trillion and net JPY5 trillion injection by the BOJ, which is a harbinger of what will happen west of Japan when push comes to shove. And so now all eyes turn to US GDP, which, continuing the Constanza bizarroness, better miss for stocks to surge, as a beat of consensus of 2.5% will mean the Chairman was not joking when he told the world he was morphing from a dove to a hawk (if only for theatrical purposes).