Florida

... And the Shias - Not the Sunnis - Are Sitting On Most of the Oil

To the degree that the current crisis has anything to do with religion, it’s much less about whether Abu Bakr or Ali was Muhammad’s rightful successor and much more about who’s going to control something more concrete right now: oil.

In March 2014 Wall Street’s ex-items S&P 500 earnings forecast for 2015 was about $133 per share; it ended up 20% lower at $106. Yet here they go again - the consensus for 2016 started out at $137 per share last spring, and is just now beginning to make its way back toward the high $120s. It is a barometer of the abject complacency and intellectual sloth that has descended on the casino owing to two decades of Fed coddling and seven year of free money for the carry trades. In the case of Chipotle, it was always just a burrito. In the case of the US and world economy and financial markets, it’s not even that.

"In America, the idea is that if you work hard and play by the rules, you’ll be rewarded with a good life for yourself and a better chance for your children.” That’s what America used to stand for, and indeed much of the Western world. Freedom. Truth. Hard work and fair play. Building a better life. But those ideals have all but faded now, displaced by a new normal of war, debt, government surveillance, freedom-killing bureaucracy, and a monetary policy that decimates responsible, hard-working people for the benefit of a tiny elite.

If Donald Trump is a megalomaniac salivating over taking control of American Weimar, then both Hillary Clinton and Marco Rubio are führers in the making. The same goes for the rest of the field, where each and every candidate aspires to be the Celebrity-in-Chief. Trump only looks worse because he doesn’t have the benefit of a sympathetic media on his side.

My overriding theme and the central drama for the coming year is that unexpected events can take on greater importance as the Federal Reserve ends its near-decade-long Zero Interest Rate Policy. Consensus premises and forecasts will likely fall flat, in a rather spectacular manner. The low-conviction and directionless market that we saw in 2015 could become a no-conviction and very-much-directed market (i.e. one that's directed lower) in 2016. There will be no peace on earth in 2016, and our markets could lose a cushion of protection as valuations contract. (Just as "malinvestment" represented a key theme this year, we expect a compression of price-to-earnings ratios to serve as a big market driver in 2016.) In other words, we don't think 2016 will be fun.

Our quarterly survey of “Off the Grid” economic indicators finds that the U.S. economy is still growing, but the pace seems to be slowing from Q3 2015.

We apologize, but 2015 had so many negatives that we’re having trouble seeing the positives. It’s like we’re on the Titanic, and it’s tilting at an 85-degree angle with its propellers way up in the air, and we’re dangling over the cold Atlantic trying to tell ourselves: “At least there’s no waiting for the shuffleboard courts!” Are we saying that 2015 was the worst year ever? Are we saying it was worse than, for example, 1347, the year when the Bubonic Plague killed a large part of humanity? Yes, we are saying that.

"The Roman Empire, a police state in its own right, had ordered that a census be conducted. Joseph and his pregnant wife Mary traveled to the little town of Bethlehem so that they could be counted. There being no room for the couple at any of the inns, they stayed in a stable, where Mary gave birth to a baby boy. That boy, Jesus, would grow up to undermine the political and religious establishment of his day and was eventually crucified as a warning to others not to challenge the powers-that-be." But what if Jesus, the revered preacher, teacher, radical and prophet, had been born 2,000 years later? How would Jesus’ life have been different had he be born and raised in the American police state?

• Global Stocks Take Breather After Oil-Fueled Rally (WSJ)
• Junk Investors Evade the Trade (WSJ)
• How the Third Avenue Fund Melted Down (WSJ)
• Oil Traders Set to Pounce as U.S. Prepares to Lift Export Ban (BBG)
• JPMorgan Says Japan Inc. Must Prepare for Yen Below 100 a Dollar (BBG)

The 10.5% crash in existing home sales is the worst November drop ever. Against expectations of a mere 0.2% drop, this is the largest miss in history asnd tumbles SAAR sales to the weakest since March 2014. The collapse in sales was across all regions, and ironically was accompanied by a rise in median home prices across all regions. Of course there was plenty of blame to go around, from inventory constraints to weather but most of all - paperwork - as new regulations - Know Before You Owe initiative, has meant longer closing times. In other words, wait til next month, it will all be great!?

"The trouble is that rents are running high not because house prices are booming and/or construction is sawing but because structurally new entrants to the housing market are renters not owners. This is reflected in the very low first time homebuyer rate, less than 30 percent."

Following Vladimir Putin's 'endorsement' of The Donald, explaining his hope for "a more substantial, deeper relationship," with America, Trump has reciprocated the show of respect by thanking the Russian president for the "great honor." This mutual back-patting stunned MSNBC anchor Joe Scarborough, who exclaimed, Putin "is a person who kills journalists, political opponents and invades countries," to which Trump responded, silencing Scarborough, "he's running his country, and at least he's a leader, unlike what we have in our country."

As concerning and hateful as so much of Trump’s commentary is, we can at least be sure he speaks from his own twisted mind. This is precisely why he appeals to so many people in this day and age of completely captured politicians. People like the fact that every word out of his mouth hasn’t been carefully placed there by some billionaire patron. On the exact opposite end of that spectrum we find Marco Rubio. A man so incapable of free-thought, he becomes the ideal target for billionaires looking to craft the perfect puppet. Forget Jeb Bush, Marco Rubio is now the establishment GOP’s pick, and they will do everything in their power to get him the nomination.

"The spirit of the people of Wisconsin is evident in the ... USS Milwaukee. It is this spirit that will live on through this ship as it carries the name Milwaukee across the globe."