Month: November 2018

A new video from James O’Keefe’s Project Veritas shows a Texas poll worker admitting that “tons” of non-citizens have been voting. 

BREAKING @Project_Veritas: Non-Citizens Voting in Texas? “We got TONS of them” Says Election Official on Undercover Video (WATCH: https://t.co/AS489C2BCY ) pic.twitter.com/2fU5WmSnEP

— James O’Keefe (@JamesOKeefeIII) November 6, 2018

Developing… 

via RSS https://ift.tt/2zxmZdE Tyler Durden

Authored by Major Danny Sjursen via AntiWar.com,

The United States military is actively fighting in seven Muslim-majority countries; and no one cares. As Americans go to the polls today in a ritual pretense of democracy, they will vote for one of the two major political parties on issues ranging from healthcare to immigration to the basic personality of President Donald Trump. The three mainstream networks – from “liberal” MSNBC to “conservative” Fox News – have reported on little else for the last several months. The whole charade is little more than politics-as-entertainment, like some popular sporting event in which the opposing sides wave the flag for the blue team or the red team.

For weeks now, my television, and yours, has been saturated with political commercials for and against local legislative candidates. Some are attack ads focused on corruption and the supposed left or right-wing extremism of the opposing candidate. Others center on taxes, healthcare, and the ostensible “hordes” of immigrants approaching the U.S. in a troublesome caravan. But none, I repeat, none, say a thing about American foreign policy, the nation’s ongoing wars, or the exploding, record defense budget.

You see, in 2018, despite being engrossed in the longest war in US history, the citizenry – both on Main Street and Wall Street – display nothing but apathy on the subject of America’s clearly faltering foreign policy.

The reasons are fairly simple: while the populace reflexively (over) adulates our “heroes” in uniform, it has been programmed to ignore the actual travails of our troopers. So long as there is no conscription of Americans’ sons and daughters, and so long as taxes don’t rise (we simply put our wars on the national credit card), the people are quite content to allow less than 1% of the population fight the nation’s failing wars – with no questions asked. Both mainstream wings of the Republicans and Democrats like it that way.

They practice the politics of distraction and go on tacitly supporting one indecisive intervention after another, all the while basking in the embarrassment of riches bestowed upon them by the corporate military industrial complex. Everyone wins, except, that is, the soldiers doing multiple tours of combat duty, and – dare I say – the people of the Greater Middle East, who live in an utterly destabilized nightmare of a region.

Why should we be surprised? The de facto “leaders” of both parties – the Chuck Schumers, Joe Bidens, Hillary Clintons and Mitch McConnells of the world – all voted for the 2002 Iraq War resolution, one of the worst foreign policy adventures in American History. Sure, on domestic issues – taxes, healthcare, immigration – there may be some distinction between Republican and Democratic policies; but on the profound issues of war and peace, there is precious little daylight between the two parties. That, right there, is a formula for perpetual war.

To find the few brave voices willing to dissent against the foreign policy consensus, one must look to the political margins of the libertarian right (i.e. Rand Paul) and the democratic socialist left (i.e. Bernie Sanders). This is a sad state of affairs on an election day that both Donald Trump and Barack Obama have assured us is the “most consequential” of our lifetimes. You see on this point I actually agree with these two polar political opposites. This is a vital election, only not for the reasons we’re told. This November 6th is profound because it demonstrates, once and for all, the utter vacuousness of American politics.

So where does the U.S. currently stand on foreign policy today? Well, it is actively bombing seven countries, has up to 800 military bases in 80 countries, has combat troops, special forces, drones and/or advisors on the ground in (or in the skies above) Syria, Iraq, Afghanistan, Somalia, Yemen, West Africa, Libya and Pakistan, among others. Occasionally, American service-members are still dying across the Middle East – often in treacherous insider attacks, in which they very people we “advise and assist” turn their weapons on our troops.

Furthermore, it is unclear that the US is either “winning” – whatever that means anymore – or accomplishing anything of note in any of these locales. For example, in the longest conflict of the lot, Afghanistan, all the key metrics indicate that the US is losing, both politically and militarily. As for the other ongoing wars in the region, no one – not the generals or the civilian policymakers – seems capable of articulating an exit strategy. Maybe there just isn’t any.

Still, none of that will be on the ballot today, when Americans queue up to vote for their favorite teams. They’ll be casting ballots based on the illusion of differentiation between two highly corporate political entities that are squarely in the pocket of the weapons’ industry and their Wall Street financiers. And, tonight, when the media outlets dazzle their viewers with holograms, charts, and other neat toys depicting the day’s winners and losers – not one station will even utter that naughty word: Afghanistan.

What all this illustrates, in sum, is that the citizenry doesn’t really care about the troops, and neither do their elected leaders. Soldiers are political props and little else – meant to be “thanked,” paraded at sporting events, and then effectively ignored – the new American way.

The republic, or, more accurately, the empire, is in real trouble when – in the midst of its longest conflicts ever – war is not even on the agenda at the polls today.

Pity the nation…

via RSS https://ift.tt/2Qp1G5h Tyler Durden

A Pennsylvania man reportedly threatened to “shoot up” a polling station in Washington County on Tuesday morning just after 8 a.m.

According to police, 48-year-old Christopher Thomas Queen of Claysville arrived at the South Franklin social hall, only to be told he was not registered to vote in that area, reports CBS Pittsburgh. 

Queen is said to have become enraged – telling volunteers he was going to get a gun and “shoot up” the polling station. 

Queen “became upset, told the poll workers he was going to go get a gun and come back and shoot them,” Melanie Ostrander, Washington County’s assistant elections director, told the AP.

The incident reportedly occurred at the Franklin Volunteer Fire Department in the township of South Franklin. Queen does not have a registered attorney, according to court documents viewed by the AP, and phone calls to his residence were not answered. –The Hill

He faces charges of terroristic threats and disorderly conduct. 

via RSS https://ift.tt/2FjRvOr Tyler Durden

Authored by Brittany Hunter via The Foundation for Economic Education,

Sears and Blockbuster fell because neither was able to adapt and grow with its consumer base. Is Facebook making the same mistakes?

Over the last several years, Facebook has gone from facilitating the free flow of information to inhibiting it through incremental censorship and account purges. What began with the ban of Alex Jones last summer has since escalated to include the expulsion of hundreds of additional pages, each political in nature. And as more people become wary of the social media platform’s motives, one thing is absolutely certain: we need more market competition in the realm of social media.

Facebook might seem too big to fail, but rest assured it is not. Unless it is protected by a government monopoly, every single product and service is vulnerable to market forces, even those considered too powerful. Just a few weeks ago, the once-mighty Sears announced its plans to file for bankruptcy and close 142 of its department store locations. It also wasn’t so long ago when Blockbuster Video, a staple of weekend fun in the 90s, announced its closure, as well. These institutions were at the top of their games at one point but were each unable to satisfy their customers as they once did. And both were inevitably replaced by better services like Amazon Prime and Netflix.

Facebook might seem different from other traditional market entities since it technically doesn’t sell anything to the bulk of its users. But just like Sears and Blockbuster, its success relies on its ability to attract and maintain its customers. And in the wake of the recent purges – and its recent security breaches – it is quite possible that, like Myspace and Friendster, Facebook is not long for this world.

Source

The Situation

When it was announced that Facebook, YouTube, iTunes, and eventually Twitter had banned the accounts associated with Alex Jones, it elicited mixed reactions from the public. On one hand, Alex Jones is infamously known for building his career on being an instigator and a “troll,” rendering him an unsympathetic character to most of the American public. On the other hand, the sweeping ban of Jones was concerning as it threatened the future of independent media. After all, if this could happen to Jones, who would be next?

To be sure, Facebook is privately owned and is allowed to curate its own content as it sees fit. However, just because someone can do something doesn’t necessarily mean that they should. And it most certainly doesn’t mean that, as users of this platform, we should not voice our concerns.

As the summer droned on, independent media held its breath waiting to see how the “Jones” decision would impact their own accounts.

A few weeks ago, the situation escalated when Facebook went one step further and announced it would be deleting nearly 800 pages it said violated its terms of service. Specifically, these pages were accused of “spamming” users, though Facebook’s use of the word was not clearly defined.

However, the fact remains that many of the deleted pages were right-leaning and libertarian, leading many to assume that these purges were politically motivated. And given the prior accusations made against Facebook in regards to suppressing conservative-leaning links and news stories, these assumptions did not seem off-base even if Zuckerberg claimed that content was not a contributing factor.

Carey Wedler, editor-in-chief of Anti-Media, an independent news platform that just had its page deleted by Facebook, told FEE:

According to Facebook, we were not suspended for our content but for “spamming” and using “misleading” practices, but these are tactics we have never employed, and other large pages that employ posting strategies like ours, such as Occupy Democrats (also known to share fake news), were not removed. Curiously, in July, Facebook assigned us a representative to help us manage our page. They also gave us $500 in free advertising to boost our content in September, and these actions seem to imply they had no issues with either our content or our practices.

Even though the purge’s proximity to the approaching midterm elections appears suspect, Facebook maintains that its decision to delete these accounts was purely the result of spam violations and not because of the actual page content. This allowed Zuckerberg to hold firm to his claims that Facebook was not practicing censorship but was instead just enforcing policies that already existed in the user terms of service.

However, last week the popular libertarian Facebook account “Liberty Memes” had its page deleted, adding more fuel to the fire. Unlike the previous purge, Liberty Memes was not deleted under the guise of spamming its users like the others. Instead, Facebook openly admitted that the page was being deleted directly because of its content.

In the digital age, it is highly probable that at some point you will come into contact with content you find offensive or untrue. While offensive content can simply be ignored and dismissed, ideally, each individual should be responsible for determining whether or not the information they are exposed to is credible. But with the “fake news” hysteria we are currently experiencing, Facebook has taken it upon itself to protect its users from potentially misleading or even offensive content. And even if these decisions were made in an attempt to appease the many users who would like to see all opposing thought suppressed, this may inevitably come back to haunt the company.

Facebook has not had a great couple of years. In addition to being blamed for both the suppression of conservative links and Trump being elected to office, the popular social media site was also found to have compromised its users’ data on more than one occasion. And while the decision was voluntary, Zuckerberg also found himself testifying in front of Congress just a few months ago. And on the business side of things, market shares have slumped 7.5 percent over the year.

In fact, over the past year, Facebook use has also been dwindling, and over 44 percent of young users have admitted to deleting the app off of their phones entirely. In droves, young people are flocking to sites like Snapchat, Instagram, YouTube, and Twitter, instead. And without this younger crowd, Facebook could soon find itself desperate for users.

As written in INC:

Recent findings make it clear that a large number of users have changed their relationship with Facebook over the past year following the company’s privacy and security scandals. With ripple effects still being felt over six months after Cambridge Analytica, it’s unlikely migration from the app will slow down any time soon.

So, what does this mean for those of us who are dissatisfied with the behavior of Zuckerberg and Facebook? It means the situation is ripe for new platforms to rise up and take its place. And we should be diligently searching for its replacement or replacements.

Voice and Exit

Voting with our dollars is one of the most powerful actions we can take as consumers. While we might not be paying for Facebook memberships, each time we log-on to the site and actively engage with other users, we are voting in favor of the social media company. And for many of us, we feel as though we have no other choice.

As a writer, I will be the first to admit that I personally rely on Facebook as a means of sharing my work with others. In fact, the thought of deleting my account fills me with unease and isolation. After all, if I am not on Facebook, how can I stay connected to all my contacts around the globe? And since many of us are so hesitant to leave, Facebook has maintained its power in the social media space. But this can easily change.

There is a grave misconception that the market process is passive when quite the opposite is true. In order for the market to work, consumers must diligently vote with their feet and their money in order to prop up the brands and products they prefer. If a company does something a consumer is opposed to, the consumer can decide to take their business elsewhere or, in extreme conditions, turn to protests and boycotts as we have seen recently with brands like Nike. Consumers have substantial potential to cause financial harm to these companies, they just have to choose to use this power.

We are living in an era of disruption. Just a few years ago, the potential for Bitcoin and other cryptocurrencies to compete with global currencies seemed unfathomable. And while we are still years away from a full-fledged monetary revolution, crypto has proved itself to be a force to be reckoned with in the finance world. If anyone has any doubt of this, just look at how many governments and Keynesian economists fear its widespread adoption.

In the earlier days of Bitcoin, users were small in number as the network was still in its infancy and needed to grow. But over the last couple of years, more and more users have been flocking to cryptocurrencies after becoming disenchanted with centralized financial institutions. The very same thing could happen to Facebook. And speaking of the world of cryptocurrencies, many of the platform alternatives to Facebook that are popping up are utilizing blockchain technology.

Minds, Telegram, Steemit, Mastadon, and other burgeoning social media companies are looking to blockchain to not only keep private user data safe but also to keep the networks decentralized and safeguarded against the same type of censorship we have seen coming from the authority figures in charge of Facebook. But in order for any of these platforms to take off, they will need early adopters and users willing to build a modern social network that has learned from the errors of its predecessors.

Sears and Blockbuster fell because neither was able to adapt and grow with its consumer base. Facebook has routinely gone against the wishes and needs of its users and is just now starting to face the consequences.

As Wedler says:

Just as people across the political spectrum are fed up with the current system, so, too, are social media users frustrated with the major platforms currently dominating the market. In both cases, it seems not only obvious but also vital that instead of simply tolerating the current paradigms, individuals must take tangible action to make their preferences known. With respect to social media, if enough people walk their increasingly dissatisfied talk, there is huge potential to spark an exodus towards platforms that better meet their demands and expectations.

via RSS https://ift.tt/2PeikrG Tyler Durden

WTI plunged to a $61 handle, and 7-month lows, ahead of tonight’s API inventory data as trade war anxiety raised global demand fears and Iran sanctions exemptions lifted supply concerns.

“Oil prices don’t have any real reason to rally significantly,” said Phil Streible, senior market strategist at R.J. O’Brien & Associates LLC in Chicago.

And things got worse as WTI extended its losses after API reported.

API

• Crude +7.831mm (+2mm exp)

• Cushing +3.073mm (+2.1mm exp)

• Gasoline -1.195mm

• Distillates -3.638mm

The seventh weekly build in Crude and Cushing inventory levels (both considerably higher than expected)…

 

WTI was hovering around $62.20 ahead of the API print but kneejerked lower

“The U.S. has for now given a lifeline to Iran,” said Olivier Jakob, managing director at Petromatrix GmbH in Zug, Switzerland. “The end result of the sanctions is softer than expected. The final outcome of the sanctions also confirms the political fear of high gasoline prices.”

And finally, Bloomberg’s Javier Blas highlights perfectly why oil prices are sliding…

#Oil Watch: @EIAgov is painting a quite difficult year for #OPEC+ group, with crude stock-builds in every quarter until 4Q 2019 | #OOTT pic.twitter.com/GnXfR7P3Ce

— Javier Blas (@JavierBlas) November 6, 2018

via RSS https://ift.tt/2zwSm82 Tyler Durden

Authored by John Mauldin via MauldinEconomics.com,

But, like Cinderella at the ball, you must heed one warning or everything will turn into pumpkins and mice: Mr. Market is there to serve you, not to guide you. It is his pocketbook, not his wisdom, that you will find useful. If he shows up some day in a particularly foolish mood, you are free to either ignore him or to take advantage of him, but it will be disastrous if you fall under his influence. Indeed, if you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game. As they say in poker, “If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.”

– Warren Buffett (b. 1930), 1987 Berkshire Hathaway Annual Report

Those who do not learn from history are doomed to repeat its mistakes.

– George Santayana (1863–1952), Spanish-American philosopher

Those who don’t study history are doomed to repeat it. Yet those who do study history are doomed to stand by helplessly while everyone else repeats it.

—Tom Toro (b. 1982), American cartoonist for The New Yorker

All good things come to an end, even economic growth cycles. The present one is getting long in the tooth. While it doesn’t have to end now, it will end eventually. Signs increasingly suggest we are approaching that point.

Whenever it happens, the next downturn will hit millions who still haven’t recovered from the last recession, millions more who did recover but forgot how bad it was, and millions more who reached adulthood during the boom. They saw it as children or teens but didn’t feel the full impact. Now, with their own jobs and families, they will.

Again, there’s no doubt—none, zero, zip—this will happen. The main question is when. Just a few weeks ago, I had hopes we could postpone it possibly even beyond the 2020 elections. It could still happen, but a barrage of data in the last few weeks suggest this may be more hope than reality. And as I constantly remind you, hope is not a strategy.

Last week (and indeed for the last year), I talked about our growing debt problem and how it could trigger a crisis. Excessive leverage may light the fuse, but the real problems are deeper. A new report, just out this week, highlighted an important one.

Zombies and Unicorns

Debt can be useful when used wisely and wisdom begins with being able to repay it. So, if you have a debt-financed business, for example, you should have enough steady revenue to cover your other expenses and the interest on your debt—with a plan to reduce that debt. If you can’t, something is wrong.

It turns out this is far more common than most of us think. A new Bank for International Settlements studyexamined a database of 32,000 listed companies in 14 advanced economies to identify “zombie” businesses. By their broad definition, a company is a zombie if it is…

• at least 10 years old, and

• its interest coverage ratio has been below 1.0 for three consecutive years.

That’s a low bar… yet 12% of the public companies they examined couldn’t pass it.

BIS doesn’t identify the companies by name. I suspect they are probably separate from the “unicorns” we hear about, which are mostly equity-financed by hopeful venture capitalists. In theory, bankers and bond buyers should be more risk-averse than VC investors, but that does not appear to be the case. Thousands of companies are going years with little prospect of repaying their debts, yet for whatever reason, the lenders see no need to stop lending to them, much less foreclose.

Nor are these sketchy foreign companies. Looking only at US listed companies, about 16% qualify as zombies. So, we are actually more zombie-friendly than our average global peers.

Source: Bank for International Settlements

Why lend covenant-light money to speculative firms like WeWork with the expectation they will repay? This is a relatively new phenomenon. The red lines in the two charts below are the percentage of zombie companies, broadly and narrowly defined. In either case, it was close to zero in the late 1980s and has climbed steadily since then. Worse, once you become a zombie company, the probability of remaining one is high and rising. Not exactly something that should comfort lenders.

Source: Bank for International Settlements

Not coincidentally, it was about the beginning of this data when Michael Milken pioneered the junk bond (politely “high yield”) market, whose purpose was (and is) to make credit available to marginal companies not otherwise attractive to most lenders. Milken made them attractive by dangling high yields at potential bond buyers. This was supposed to compensate them for the higher default risk. It worked, too. Now it may be working too well.

Faced with a probable loss, lenders always face a temptation to “extend and pretend.” They convince themselves that another year or another quarter will let it turn into a sterling borrower who pays in full and on time. And more often than not, the zombie company has a charismatic CEO or founder who can charm lenders.

Now, there are perfectly understandable, human reasons for this. No one wants to force people out of their homes or put a company out of business and leave its workers jobless. But capitalism requires both creation and destruction. Keeping zombies alive hurts healthy companies. BIS found it actually reduces productivity for the entire economy.

The other side is that lenders must lose their money, too. Those who make irresponsible lending decisions have to face market discipline or they will keep doing it, causing further problems. Unfortunately, we do the opposite. Bailouts and monetary stimulus over the last decade generated a lot of unwise lending that is not going to end well.

Many (possibly most) of these zombie companies should fail. Or, more accurately, they will fail either suddenly in a crisis, or in slow motion if their lenders won’t bite the bullet. There really are no other options. And when they do, it will hurt not only their lenders but their suppliers, workers, and shareholders.

That, my friends, is how recessions begin. If we’re lucky, it will occur gradually and give us time to adapt. But more likely, given high leverage and interconnected markets, it will spark another crisis.

Not long before the last crisis, Ben Bernanke assured us the subprime “problem” was contained. It reminds me of the old Hemingway line, “How does one go bankrupt?” The answer: “Slowly, and then all at once.”

Missing Investment

Having said all that, let’s assume for a minute the US avoids recession, or at least postpones it a few more years. That doesn’t mean the present boom will continue. Expansion/recession isn’t a binary choice. There’s lots of room in between, which means a lot of room for conditions to worsen without actually reversing.

I titled this letter “Economic Brake Lights” because it’s a fitting metaphor. If you’re driving down the highway and the cars in front of you put on their brakes, they aren’t necessarily stopping. They are probably just decelerating, i.e. reducing their forward speed in reaction to conditions ahead. The other cars could be coming to a complete stop, however, so you slow down until you have better information.

Likewise, we are starting to see businesses tap their brakes. The initial US GDP report showed continued growth in the third quarter, a 3.5% annual rate. That was good, but the report had some warning lights, too. Non-residential business investment grew only 0.8% annualized, a sharp deceleration from the first quarter’s 11.5% rate.

And as we get a little bit deeper into the data, we see that 2.1% of that GDP growth was actually inventory building. That counts as growth as far as GDP is concerned. When it is sold, it does not add to GDP. This is why automotive companies “stuff the channel” by sending inventory down to their dealers. Once off their books, it counts as “sold.”

Higher inventory functions like debt. Just as debt is future consumption brought forward, inventories are future sales brought forward—at least in terms of GDP accounting.

(Sidebar: The Trump tariffs may have unintentionally boosted the inventory cycle by encouraging businesses to stockpile goods ahead of higher tariffs. If that is so, we could see either a swift reduction if Trump and Xi reach an agreement or the slower reduction as those inventories dwindle in 2019. I have literally no idea, nor do any of my usual sources, what will happen. Stay tuned.)

The first quarter’s sharp investment growth was partly a response to the corporate tax cut passed last December, which included several provisions intended to produce exactly that effect. I said at the time it would work for a while but probably fade, and it is doing so faster than many of us would like.

Now, I don’t necessarily expect tax policy to drive business decisions. You invest in expanded capacity when you think it will produce revenue, and the costs will let you still make a profit. Taxes are only part of that decision and probably not the most important part. Ultimately, businesses expand and hire when they think consumers are ready to buy their products.

The problem is that strong GDP growth forecasts assume businesses will make the kind of investments it now appears they are not. If so, then we may look back and see this year’s second quarter growth of 4.2% was the peak, and it’s downhill from here. The Atlanta GDP estimate now shows 2.4% for the fourth quarter. My personal opinion is we will be lucky to average 2% in 2019.

That doesn’t mean growth will drop all the way to zero or below. I can imagine a few more years of sideways-to-flat conditions. It wouldn’t be the worst thing in the world. But if that’s what we get, some stock investors will be mighty disappointed because share prices are assuming much more.

The Deficit and Debt Drag on the Economy

As I’ve written, and as my friend Dr. Lacy Hunt has demonstrated from the economic literature, increasing debt becomes a drag on an economy, especially after it rises over the 80 to 90% of GDP level. US government debt is now 106% of GDP, and if you add state and local debt, which causes similar drag, total government debt at all levels is over 120% of GDP. Shades of Italy and Greece.

Congress wants you to believe last year’s deficit was $779 billion. They don’t mention the off-budget deficit, which adds just as inexorably to total debt. It is not easy to find that number, but fortunately, my friend Michael Lewitt writing in The Credit Strategist brings us this pithy note:

Our current prosperity is built on an explosion of debt; it is therefore unsustainable. The US added roughly $1.3 trillion of GDP in the fiscal year that ended in September but also added $1.271 trillion of debt. Interest rates, while still running well below real-world inflation, are rising in a heavily leveraged economy. The $1.271 trillion increase in federal debt was nearly $500 billion or 39% higher than the official annual deficit of only $779 billion, which means that politicians are keeping significant amounts of debt off-balance sheet. I don’t know who they think they’re fooling, but they aren’t going to be able to keep this con game running much longer. Over the past five years, the official deficit was reported as $2.977 trillion whereas the federal deficit grew by $4.777 trillion, meaning that 38% of the actual shortfall was hidden by our feckless leaders. And all of these figures do not include trillions of more dollars of off-balance sheet entitlement obligations promised by the government to future retirees and other voters.

That deficit was for fiscal 2018, which ended on September 30. The CBO’s latest projection is we will add close to $1 trillion of debt in 2019 and over $1 trillion in 2020. If the Democrats take the House next week, even narrowly, is there any real hope of cutting that deficit without tax increases? Which both the Senate and Trump will not accept?

The off-budget deficits have averaged around $360 billion for the last five years, generally increasing over time. But if we take just that average and add them to the projected deficits, the US government deficit will be (drumroll, please) approximately $1.4 trillion per year for the next five years, which will mean $29 trillion total debt by 2024.

And that’s without a recession. Throw in a recession, and we’ll get to $30 trillion long before then. Care to speculate what interest rates will be? What quantitative easing will look like? What all the other market disruptors will look like?

As Mr. Rogers might like to say, can you spell volatility, boys and girls? In fact, let’s close this letter talking about volatility and liquidity.

Swimming in Liquidity

There are these two young fish swimming along, and they happen to meet an older fish swimming the other way, who nods at them and says, “Morning, boys, how’s the water?” And the two young fish swim on for a bit, and then eventually one of them looks over at the other and goes, “What the hell is water?”

David Foster Wallace, This is Water (2005)

My friend Chris Cole at Artemis Capital in Austin occasionally writes a rather brilliant client letter. He graciously sends it to me. I’m going to share the full letter in Over My Shoulder soon, but here’s a quick bite.

Chris notes the above story about the two young fish not being aware they are swimming in water, and suggests most investors are doing the same. We have been swimming in a sea of liquidity for so long that we notice it only when it disappears. Then central banks provide more liquidity, and things go back to what we think is normal.

But liquidity is simply investor willingness to buy and sell. It is as much about market and investor sentiment as any true “fundamental.” Here’s Chris Cole:

In markets and in life, we swim in mediums of thought abstractions… the same way a fish swims in water. When the medium collapses, so does the reality… causing us to question the nature of both. As Foster Wallace eloquently explains, “The immediate point of the fish story is that the most obvious, ubiquitous, important realities are often the ones that are the hardest to see and talk about.” Volatility is always the failure of medium… the crumpling of a reality we thought we knew to a new truth. It is the moment where we learn that we are a fish living in a false reality called water… and that reality can change… or there are other realities. True volatility isn’t the change of the thing, it’s the changing of the medium around it and the realization that the thing never really existed in the first place.

This is all you need to know to understand when the volatility storm will truly come. It is not about valuations, money printing, or where the VIX is at any point. When the collective consciousness stops believing growth can be created by money and debt expansion, the entire medium will fall apart violently, otherwise it will continue to be real. The belief that the medium is the reality is what holds the edifice together temporally.

You might dismiss this as way too bearish. Maybe it is, right now and for the next few years. But when global debt starts suffocating economic growth and impinging on liquidity, or central banks react with too much liquidity, then the relative Sea of Tranquility in which we have been swimming could become quite tempestuous indeed.

That is why I keep harping on The Great Reset. Going back to the first quotes, we are going to relive or at least rhyme with history. I think we will set a new standard for what the word volatility (absent a shooting war) really means.

via RSS https://ift.tt/2OumC9c Tyler Durden

Ahead of tonight’s results, this seemed appropriate…

 

Another afternoon-session buying spree saved China stocks overnight…

 

After going nowhere yesterday, European stocks dropped and popped today to end modestly negative on the week…

 

US Futures show that while yesterday’s cash open was panic-selling in Nasdaq, today was panic-buying… weakness towards the end of the day was quickly assailed with a manic-bid into the uncertainty of tonight’s results…

 

On the day, early gains evaporated into the last hour.., then the ubiquitous FOMO buying panic hit (despite a huge MOC sell order)…

Look at those charts – what a farce!!

Volume was abysmal – 60% below average!

But that didn’t stop the machines swinging from a massive negative TICK to a huge positive one…

The Dow managed to limp back above its 100DMA…

 

FANG stocks rolled over after a strong open…

 

Financials continued to outperform the market into the midterms…

Despite…

just a few hours until she is in charge of the banks pic.twitter.com/jezB3TZL1m

— zerohedge (@zerohedge) November 6, 2018

 

Treasury yields were higher across the curve (but the long-end outperformed – trading in an extremely narrow range all day)…

 

Crushing the yield curve…

 

Of significant note in bond-land is the collapse in short-dated breakevens…

It’s another signal from the weakening breakeven market, as well as other markets, that investors are concerned the Federal Reserve is too tight. This week’s meeting is a chance for the central bank to mention breakevens and changing inflation expectations. Will they note that this year’s gains have now disappeared for five-year breakevens? After all, in their last statement, they had noted five-year breakevens had “ticked up” between their August and September meetings.

Bloomberg’s Sebastian Boyd notes that this deflationary impulse seems to be all about oil…

Seems he is right (a linear regression of the 5y5y breakeven rate against the generic 6th WTI contract, gives an r-squared of 0.826 over the past five years).

The Dollar leaked lower on the day…

 

Offshore Yuan went nowhere today…

 

Cryptos continue to rise on the week with Ripple surging along with Bitcoin Cash (Bitcoin vol is now at a record low)…

 

Copper continued its slide and despite dollar weakness, the entire commodity space fell on the day…

 

WTI Crude crashed to a $61 handle and 7-month lows, down 20% from its October highs and officially in a bear market…

The Yuan peg to gold continues at around 8500…

We give the last word to Gluskin-Sheff’s David Rosenberg who has an ominous historical reminder…

Word to the wise. We have endured two 10% corrections in the same year for all three major averages. This has only happened in 1973, 1974, 1987, 2000, 2001, 2002 and 2008. All but 1987 signalled recession, but that wasn’t a pretty picture either.

— David Rosenberg (@EconguyRosie) November 6, 2018

 

via RSS https://ift.tt/2OucvkO Tyler Durden

Nobel Price-winning economist Robert Shiller has been busy in the past 24 hours: one day after the famed housing-bubble watcher told Yahoo Finance that the weakening US housing market is similar to the last market high, just before the subprime housing bubble burst a decade ago, Shiller spoke at a London conference on quantitative tightening, warning that the market is vulnerable to another bout of declines as tonight’s midterm elections challenge the U.S. president’s pro-growth posture.

“It’s an election day now and it’s about one man: Donald J. Trump,” Shiller said, clarifying that “it’s not technically about him but in our minds, they are about him because the narrative has gotten so strong. It’s contagious.”

What is odd about Shiller’s gloomy forecast is that analyst consensus has been generally sanguine about both the outcome of tonight’s election as has the market, with the CBOE Skew index printing near 2.5 year lows and stocks well in the green; yet for the Nobel laureate deeper divisions would be a destabilizing force for markets.

“If Trump loses, if his supporters lose, that could launch a period of chaos,” Shiller told the audience. “I do sense that the past volatility just before the election had something to do with a feeling of chaos. Trump said he might shoot at the Mexican caravan and then he took it back. It’s just wild. It doesn’t feel comfortable.”

As discussed previously, pollsters project a Democrat-controlled House and a Republican-led Senate, a scenario that would lead to legislative gridlock, and would have little impact on stocks. But Shiller disagrees: “The narrative is Donald J. Trump, tax cutter, regulation cutter. It looks plausible so the market goes all the way up with earnings, but these things are temporary but the market doesn’t seem to get that.”

Hardly a permabear, Shiller, who is best known for his analysis of asset bubbles, has been casting doubt on the sustainability of a record-long bull market which is already flagging, after stocks tumbled 7.4% in October, the most in six years. However, to Shiller even with the recent near-correction, valuations are not high enough to cushion the latent political risk. As Bloomberg notes, the cyclically adjusted price-to-earnings, or CAPE ratio developed by Shiller three decades ago sits at 31x earnings, far above its historical average (if well below its all time high of 44x before the dot-com crash).

“We’re in a funny mood of fear and chaos at the moment which is a narrative that makes stock markets more vulnerable right now, whichever way the election comes out,” he said.

via RSS https://ift.tt/2yUyKLA Tyler Durden