Commercial Real Estate
In fitting with the pre-holiday theme, and the moribund liquidity theme of the past few months and years, there was little of note in the overnight session with few event catalysts to guide futures beside the topping out EURJPY. Chinese stocks closed a shade of red following news local banks might be coming under further scrutiny on their lending/accounting practices - the Chinese banking regulator has drafted rules restricting banks from using resale or repurchase agreements to move assets off their balance sheets as a way to sidestep loan-to-deposit ratios that constrain loan growth. The return of the nightly Japanese jawboning of the Yen did little to boost sentiment, as the Nikkei closed down 104 points to 15515. Japan has gotten to the point where merely talking a weaker Yen will no longer work, and the BOJ will actually have to do something - something which the ECB, whose currency is at a 4 year high against Japan, may not like.
A great many long refuted Keynesian shibboleths keep being resurrected in Krugman's fantasy-land, where economic laws are magically suspended, virtue becomes vice and bubbles and the expropriation of savers the best ways to grow the economy. According to Paul Krugman, saving is evil and savers should therefore be forcibly deprived of positive interest returns. This echoes the 'euthanasia of the rentier' demanded by Keynes, who is the most prominent source of the erroneous underconsumption theory Krugman is propagating. Similar to John Law and scores of inflationists since then, he believes that economic growth is driven by 'spending' and consumption. This is putting the cart before the horse. We don't deny that inflation and deficit spending can create a temporary illusory sense of prosperity by diverting scarce resources from wealth-generating toward wealth-consuming activities. It should however be obvious that this can only lead to severe long term economic problems. Finally it should be pointed out that the idea that economic laws are somehow 'different' in periods of economic contraction is a cop-out mainly designed to prevent people from asking an obvious question: if deficit spending and inflation are so great, why not always pursue them?
Pushing the neo-liberal argument further than it wants to go, with interesting results.
If one was a foreigner visiting for the first time, one would think Space Available was the hot new retailer in the country. Thousands of Space Available signs dot the bleak landscape, as office buildings, strip malls, and industrial complexes wither and die. At least the Chinese "Space Available" sign manufacturers are doing well. The only buildings doing brisk business are the food banks and homeless shelters. However, reports like the recent one from SNL Financial – Branch Networks Continue to Shrink - are emblematic of the mal-investment spurred by the Federal Reserve easy money policies, zero interest rates, and QEternity... In a truly free, non-manipulated market the weak would be culled, new dynamic competitors would fill the void, and consumers would benefit. However, extending debt payment schedules of the largest zombie entities and pretending you will get paid has been the mantra of the insolvent zombie Wall Street banks since 2009.
"Every American family deserves a false sense of security," said Chris Reppto, a risk analyst for Citigroup in New York. "Once we have a bubble to provide a fragile foundation, we can begin building pyramid scheme on top of pyramid scheme, and before we know it, the financial situation will return to normal." Despite the overwhelming support for a new bubble among investors, some in Washington are critical of the idea, calling continued reliance on bubble-based economics a mistake. Regardless of the outcome of this week's congressional hearings, however, one thing will remain certain: The calls for a new bubble are only going to get louder. "America needs another bubble," said Chicago investor Bob Taiken. "At this point, bubbles are the only thing keeping us afloat."
- US Blasts Germany's Economic Policies (WSJ)
- Citigroup, JPMorgan Said to Put Currency Dealers on Leave (BBG)
- Watchdog: Syria Destroys Chemical-Arms Equipment (WSJ)
- Kynikos Alumni Start Hedge Fund Betting on Declining Stocks (BBG)
- China state media calls for stern action after Tiananmen attack (RTRS)
- IMF warns of financial shock risk to Africa (FT)
- Insurers Oppose Obamacare Extension as Danger to Profits (BBG)
- BoJ content to ignore Fed tapering and go its own way (FT)
- U.S. attorney wants DOJ to take civil action against BofA (RTRS)
- NSA Fallout Hits AT&T's Ambitions In Europe (WSJ)
Two days after Spain reported its first positive sequential GDP print (unclear just how adjusted the definition of GDP was to get to this watershed moment after 9 quarters of declines) and a day after it unemployment supposedly dropped more than expected (what was left unsaid is that the Spanish working age population dropped 85,200 in Q3 and -279,000 YoY and that of the 39,500 "jump" in Q3 employed people, virtually all were self-employed or temps while employees on permanent contracts were down by 146,300), the 5 second attention span investing herd is now convinced the housing market in Spain has dropped. This was "formalized" after billionaire Bill Gates invested $155 million, also known as pocket change, in Spain's infrastructure group Fomento de Construcciones & Contratas. Surely, if anyone knows how to time housing market turns it is the guy who brought us MS-DOS 3.1. Unfortunately, the mythical housing bottom may have been just that - mythical - following news that Spain's bad bank (oh yeah - lest we forget, Spain has a wonderful rug under which it can hide all insolvent bank NPLs) failed to attract high enough bids in its first sale of commercial real estate and will cut the size of the portfolio being offered to make it easier to sell, according to Bloomberg which cited three people familiar with the matter.
David Stockman, author of The Great Deformation, summarizes the last quarter century thus: What has been growing is the wealth of the rich, the remit of the state, the girth of Wall Street, the debt burden of the people, the prosperity of the beltway and the sway of the three great branches of government - that is, the warfare state, the welfare state and the central bank...
What is flailing is the vast expanse of the Main Street economy where the great majority have experienced stagnant living standards, rising job insecurity, failure to accumulate material savings, rapidly approach old age and the certainty of a Hobbesian future where, inexorably, taxes will rise and social benefits will be cut...
He calls this condition "Sundown in America".
- Government Shuts Down as Congress Misses Deadline (WSJ); Shutdown starts, 1 million workers on unpaid leave (Reuters); Government Shutdown Begins as Deadlocked Congress Flails (BBG)
- This is not The Onion: Stocks Rise on U.S. Government Shutdown (BBG)
- Pentagon chief says shutdown hurts U.S. credibility with allies (Reuters)
- In historic step, Japan PM hikes tax; will cushion blow to economy (Reuters)
- Obama Says He Won’t Give Into ‘Ideological’ Budget Demand (BBG)
- More part-time warehouse workers: Amazon to Hire 70,000 Workers for the Holidays (WSJ)
- Less full-time legitimate workers: Merck to fire 8,500 workers (BBG)
- Education cuts hit America’s poor (FT)
- Euro-Zone Factory Growth Slows (WSJ)
- Watchdog Warns EU Not to Water Down Insurance Rules (Reuters)
Almost 4 years ago, The FT's Mike Mackenzie penned a very prophetic article explaining exactly the dilemma the Fed is now facing: "No matter how bulled up the equity market becomes, should data improve, the Fed is likely to remain very cautious, mindful that it needs to keep the bond market happy. Becoming the buyer of last resort in the past year resulted in the Fed crossing an important line in the bond market." The full piece is well worth a read as a reminder that plenty of people saw this coming, Mackenzie concludes: "the eventual end of QE will be a messier affair than perhaps many investors care to think. And one that bodes ill for the dollar and US fiscal policy down the road."
It’s often argued that they don’t a bell at the top. I would argue that we numerous bells ringing in the financial markets today.
A week ago when we presented the missing link in the "all cash" housing recovery, namely laundered, embezzled or simply stolen off-shore sourced cash parked in the US real estate market which takes advantage of the NAR's generous anti-money laundering provision exemption, we asked what we thought would be a rhetorical question: "just how far will Preet Bharara take this, and comparable such future actions?" Turns out the answer is quite a bit farther, and higher. And not only that, but instead of just targeting residential real estate, the US attorney in Manhattan, is now focusing on commercial real estate as well. As CNN reported moments ago, the US government has seized an iconic midtown Manhattan skyscraper, one where none other than Ivan Boesky plotted his insider trading schemes in the 1980s, that prosecutors claim is secretly owned and controlled by the Iranian government. The skyscraper in question is 650 Fifth Avenue, also known as the Piaget building.
There is still no official public schedule for the Kansas City Fed's annual Jackson Hole Economic Symposium, anticipated to begin on Thursday. However, as we noted previously, the schedule will not include a keynote address from a high-ranking Federal Reserve official. Furthermore, as Goldman notes, in contrast to tradition, Chairman Bernanke will not be in attendance (Yellen will but Summer won't). However, Jackson Hole has historically been an event where the latest thinking on monetary policy has been debated by academics and central bankers, and this year will be no different. Perhaps, Goldman points out, most interestingly, some of the research to be presented finds that MBS purchases had a disproportionate effect on depressing MBS yields, while Treasury purchases did not seem to have a similar benefit - perhaps hinting at the form the 'taper' will take.
On the surface, there is nothing spectacular about the weekend news that JPMorgan is seeking to sell its 1 Chase Manhattan Plaza office building. After all, the former headquarters of Chase Manhattan Bank, located deep in the heart of the financial district and which was built by its then chairman David Rockefeller, is a remnant to another time - a time when banking was about providing loans, not about managing and trading assets which has become the realm of Midtown New York, and since JPM already has extensive Midtown exposure with its offices at 270, 270 and 245 Park, the 1 CMP building always stood out as a bit of a sore thumb. Of course, as Zero Hedge readers first learned, the big surprise is literally below the surface, some 90 feet below street level to be exact, where the formerly secret JPM gold vault is located, which also happens to be the biggest commercial gold vault in the world.
This week's biggest news is not the Non-Farm Payrolls, or the European Central Bank or even Portugal's government falling. No - this week's big deal is the openness with which the Federal Reserve is preparing a major margin call on the too-big-to-fail banks in the US. This has been a long time coming since the introduction of the Dodd-Frank law back in 2010 but it is a game changer. Remember all macro paradigm shifts come from policy impulses, often mistakes. Is the Fed about to given the whole banking industry a major margin call?