- Nelson Mandela: 1918-2013 (Reuters)
- South Africans Flock to Nelson Mandela’s Home to Mourn His Death (BBG)
- Hillary Clinton or Joe Biden? Obama says won't choose between them for 2016 (Reuters)
- Fukushima water tanks: leaky and built with illegal labor (Reuters)
- Sears Holdings Files to Spin Off Lands' End Business (WSJ)
- Way cleared for landmark global trade deal (FT)
- U.S. Oil Prices Fall Sharply as Glut Forms on Gulf Coast (WSJ)
- German Factory Orders Decline in Sign of Uneven Recovery (BBG)
- FCC Unlikely to Bless a Comcast-TWC Deal: Regulator (WSJ)
The too big to fail banks have a larger share of the U.S. banking industry than they have ever had before. So if having banks that were too big to fail was a "problem" back in 2008, what is it today? The total number of banks in the United States has fallen to a brand new all-time record low and that means that the health of the too big to fail banks is now more critical to our economy than ever. In 1985, there were more than 18,000 banks in the United States. Today, there are only 6,891 left, and that number continues to drop every single year. That means that more than 10,000 U.S. banks have gone out of existence since 1985. Meanwhile, the too big to fail banks just keep on getting even bigger.
Asian equities have gotten off to a rocky start to the week despite some initial optimism around the twin-Chinese PMI beats at the start of the session. That optimism has been replaced by selling in Chinese equities, particularly small-cap Chinese stocks and A-shares after the Chinese security regulator issued a reform plan for domestic IPOs over the weekend. The market is expecting the reforms to lead to a higher number of IPOs in the coming quarters, and the fear is that this will bring a wave of new supply of stock to an already-underperforming market. Indeed, the Chinese securities regulator expects about 50 firms to complete IPOs by January 2014 – and another 763 firms have already submitted their IPO applications and are currently awaiting approval. A large number of small cap stocks listed on Hong Kong’s Growth Enterprise Market were down by more than 5% this morning, while the Shanghai Composite is down by 0.9%. The Hang Seng (+0.4%), Hang Seng China Enterprises Index (+0.8%) are performing better on a relative basis, and other China-growth assets including the AUDUSD is up 0.5%. The Nikkei (-0.1%) is also a touch weaker after Japan’s Q3 capital expenditure numbers came in well below estimates (1.5% YoY vs 3.6% forecast). Elsewhere Sterling continues to forge new multi-year highs against the USD (+0.3% overnight).
It would likely also deal another blow to the U.S property market and the fragile U.S economy. JP Morgan, Bank of America and Wells Fargo appear to be most exposed - meaning that either taxpayers will again be asked to bail out banks or more likely the coming bail-in regime will confiscate cash from depositors.
It’s interesting, disturbing and pathetic that this article emerged so shortly after we highlighted the fact that there is about to be a huge, and potentially disruptive reset in home equity loans over the next several years. So while we are still dealing with the ramifications of the prior housing bubble and the HELOCs associated with that debacle, we are right back at it. Extracting additional equity from another phony housing bubble to remodel homes that likely aren’t worth anywhere near what people think once private equity and money laundering oligarchs are done with their binge buying. As we have said many times before, QE makes a society lose its mind.
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.
Q3 earnings for financials show that the interest rate risk created by the Fed after years of zero rates is very real indeed
- US admits surveillance on foreign governments ‘reached too far’ (FT)
- He must be so proud: Obama halted NSA spying on IMF and World Bank headquarters (RTRS)
- Obamacare website gets new tech experts; oversight pressure grows (Reuters)
- R.B.S. to Split Off $61 Billion in Loans Into Internal ‘Bad Bank’ (NYT)
- Draghi’s Deflation Risk Complicates Recovery (BBG)
- Abenomics: Nissan slashes full-year profit forecast 15% (FT)
- Credit Suisse Dismisses London Trader Over 'Unusual Trading' Losses (WSJ)
- RBS avoids break-up with 38 billion pounds 'internal bad bank' (Reuters)
- Twitter Said to Attract More Than Enough Interest for IPO (BBG)
It is a common view that the shutdown, the debt-limit debacle and the repeated failure to enact entitlement and pro-growth tax reform reflect increased political polarization. John Taylor believes this gets the causality backward. Today's governance failures are closely connected to economic policy changes, particularly those growing out of the 2008 financial crisis. Despite a massive onslaught of legislation and regulation designed to foster prosperity, economic growth remains low and unemployment remains high. Claiming that one political party has been hijacked by extremists misses this key point, and prevents a serious discussion of the fundamental changes in economic policies in recent years, and their effects.
- Contractors describe scant pre-launch testing of U.S. healthcare site (Reuters)
- Carney Says BOE Revamp Offers Wider Access to Cheaper Funds (BBG)
- Help wanted in Fukushima: Low pay, high risks and gangsters (Reuters)
- Merkel and Hollande to change intelligence ties with US (FT)
- Twitter IPO pegs valuation at modest $11 billion (Reuters)
- NSA monitored calls of 35 world leaders after US official handed over contacts (Guardian)
- Officials alert foreign services that Snowden has documents on their cooperation with U.S. (WaPo)
- Scottish Nationalists Lose Vote After Plant Threatened With Axe (BBG)
- Fernández contemplates a train wreck in Argentine elections (FT)
- Irish Government will consider ‘best options’ for bailout exit (Irish Times)
While the specter of the debt ceiling debate continues to haunt the halls of Washington D.C. it is the state of retail sales that investors should be potentially focusing on. While the latest retail sales figures from the Bureau of Economic Analysis are unavailable due to the government shutdown; we can look at other data sources to derive the trend and direction of consumer spending as we head into the beginning of the biggest shopping periods of the year - Halloween, Thanks Giving (Black Friday) and Christmas. The recent downturns in consumer confidence and spending are likely being exacerbated by the controversy in Washington; but it is clear that the consumer was already feeling the pressure of the surge in interest rates, higher energy and food costs and stagnant wages. As we have warned in the past - these divergences do not last forever and tend to end very badly.
Over-burdensome regulation and massive liability exposure is stifling business and creativity, slowing the flow of capital globally and stagnating economic growth.
If mere hope of an "imminent" deal starting on Thursday and continuing through Monday, with no actual deal but who cares about details, was enough to push the DJIA up by 600 points, then all it would take to set a new record market high today, is for another day to pass - one day before the October 17 X-Date when one Senator can filibuster the US through the deadline on their own, and when the House still has to have a voice on what the Senate has been doing - without an actual debt deal. After all, the market is so "centrally-planned" all that is needed is knowledge that Bernanke will get to work, and is getting to work to the tune of $85 billion a month, mixed in with some hope. And with today's "market for idiots" facilitating POMO of over $5 billion which guarantees a green close, all that is needed is a complete failure in talks for the SPX to go limit up on even more hopes things will be fine any second now... if not right now.
- Headline of the day: U.S. Risks Joining 1933 Germany in Pantheon of Deadbeat Defaults (BBG)
- As Senate wrestles over debt ceiling, Obama stays out of sight (Reuters)
- The "Truckers Ride for the Constitution" that threatened to gum up traffic in the capital was a dud as of Friday afternoon (WSJ)
- China New Yuan Loans Top Estimates as Money-Supply Growth Slows (BBG)
- Vegetable prices fuel Chinese inflation (FT)
- China Slowing Power Use Growth Points To Weaker Output Data (MNI)
- London Wealthy Leave for Country Life as Prices Rise (BBG)
- Gulf oil production hits record (FT)
- Every year like clockwork, analysts start out bizarrely optimistic about future results, then “walk down” their forecasts (WSJ)
- Weak Exports Show Limits of China’s Growth Model (WSJ)
Planned job cuts in the third quarter rose 25% from a year ago. With September jobs cuts up 19% from last year, it represented the fourth month in a row in which job cuts were higher than the same month last year. Despite the current trend, employers are on pace to cut roughly the same number of jobs that were cut last year. We already have declining real wages. Small businesses are geting wiped out by taxes, regulations, and Obamacare. These mega-corporations are firing thousands. Retail and restaurant sales are plunging. Consumers are scared straight and are reducing credit card debt. Government spending in states and localities is declining because they are required to balance their budgets. The Boomers are old, with no savings. They can no longer live in a delusionary credit bubble. Sounds like a reason to buy stocks.