Category: zerohedge

Via Global Macro Monitor,

The power is off in Northern California but we want to get this out even though it is still in draft form.  We are working off desk and not sure when power will be restored.  Take this as our first cut or swing in one of four at-bats.  

Summary

– We analyze the various components of the household balance sheet that drove net worth for the different percentile groups from Q1 2000 to Q1 2019

– The Top 1% are the ownership class, who hold over 60 percent of their assets in equity, in both public and non-corporate business and benefited greatly from QE

– The Bottom 50% of households have not benefited from the great asset inflation of the past ten years as their debt liabilities have exceeded the 93 percent growth in assets, resulting in an 8.6 percent decline in net worth from Q1 2000 to Q1 2019

– This post is a work in progress.  Stay tuned for further updates when they turn the power back on in Northern California

In keeping our commitment we made to GMM readers in the post, America’s Perilous Path Of Wealth Distribution,  we have another follow-up with some additional and very interesting data on wealth distribution in the United States.    If you haven’t read our previous posts, run don’t walk for some deep background to this piece.  Here are the links,  America’s Perilous Path Of Wealth Distribution and  Wealth Distribution In America

Review

In the previous posts, we illustrated America’s growing wealth gap, where the the Top 1% of households now hold more wealth than the Bottom 90%.   The Top 1% are households with a net worth north of around $11-12 million.  We use the terms wealth and net worth interchangeably.

Wealth distribution in America is even more acute when comparing the 165.6 percent growth of the net worth for the Top 1% relative to the stunning  8.6 percent decline of the Bottom 50% of households.   Yes, you read that correct, the aggregate nominal wealth of the Bottom 50% of American households has fallen almost 10 percent over the past 20 years, which is politically destabilizing and explains much of the conflict in today’s body politic.

In this post, we look at the composition of wealth by asset class and the contribution each has had to the change to the net worth for each percentile group from Q1 2000 to Q1 2019.

Stock Versus Flows

We only look at the change in the stock of assets and liabilities for each household percentile group, which includes the combination of capital gains, the cumulative income from assets, and the accumulation of new asset purchases with savings out of income.    The data is not easily available to breakout the later, so keep in perspective the data includes capital appreciation, asset income,  and the accumulated flow of new savings from income over the years.  That is the absorption of cumulative savings and thus implicit income growth over the time period.

The above complicates our wealth distribution analysis as households can move from, say, the Bottom 50% to the Top 1% by hitting the lottery, for example.  In a more real-life example, one of my daughter’s classmates who was a first-round pick in the recent Major League Baseball draft woke up one morning as a starving college student and went to bed that night with a $7.8 million contract, including a huge signing bonus.   Definitely,  a meteoric rise from the Bottom 10% to the Top 10%, assuming he and his girlfriend are counted as a household by the Census Bureau.

Income, savings, and the allocation of savings matter big to wealth accumulation.  What matters even more is building and maintaining wealth.

Liabilities 

Since liabilities also play a role in determining net worth, we also have a brief look at household liabilities.

How The Rich Got Richer 

The following chart illustrates the aggregate nominal wealth of the Top 1% of households increased by $20 trillion, 165.6%,  from $12 trillion in Q1 2000 to $32 trillion in Q1 2019. Most of the increase, 60.6 percent,  came from the appreciation and accumulation of public equities and equity in non-corporate private business:  $7 trillion and $4.7 trillion, respectively.

Real estate holdings accounted for 11.6 percent of the change in net worth and fixed-income assets 6.7 percent.

Impact of QE

How much of the Top 1%’s increase in wealth was due to the Fed’s monetary policy of quantitative easing (QE)?  We can’t really quantify at this moment and will leave it for a future analysis but it is fairly safe to say, a lot.   The Top 1% have effectively become asset surfers riding QE to unfathomable riches!

Is it any wonder why support is increasing for a People’s QE?

Liabilities

The Top 1% of households carry very little debt, less than 2 percent of total assets.

Contributions To Net Worth By Household Percentile Group

How The Poor Got Poorer

Though the assets of the Bottom 50% of households increased by $3.3 trillion, or 93 percent, over the period, the group’s net worth still fell by almost 10 percent because of their change in debt liabilities exceeded the increase in assets.

Almost 80 percent of the $3.3 trillion increase in assets was in real estate and consumer durables, such as cars, which illustrates just how little the Bottom 50% are invested in the financial markets.  Only 2.9 percent of the group’s assets are held in equities and 9.8 percent in pension entitlements (see Asset Allocation chart below).

Liabilities And The Dusenberry Effect

Some of the increase in liabilities over the period was student loans, which we believe, are included in consumer debt.

We were surprised to find that even at the apex of the housing bubble, when the value real estate assets of the lower 50% were growing double digits, aggregate net worth was declining as the group’s borrowing exceeded asset growth.  We suspect it was due to leveraging and using their home equity to finance additional purchases of homes and/or using it as an ATM to finance consumption.   Moreover, the toxic mortgage debt that was marketed to the lower-income groups also played a role, such as 12o percent mortgages and option ARMs.

Stagnant Real Wages

Just a quick note on relative real wage growth from 1979 to 2018 from the Congressional Research Service (CRS),

Real wages rose at the top of the distribution, whereas wages stagnated or fell at the middle and bottom. Real (inflation-adjusted) wages at the 90th percentile increased over 1979 to 2018 for the workforce as a whole and across sex, race, and Hispanic ethnicity. However, at the 90th percentile, wage growth was much higher for white workers and lower for black and Hispanic workers.  By contrast, middle (50th percentile) and bottom (10th percentile) wages grew to a  lesser degree (e.g., women) or declined in real terms (e.g., men). – CRS

We also suspect declining real incomes in a large portion of the Bottom 50% of households resulted in the Dusenberry Effect, where households took on more debt to sustain a fleeting standard of living,

One part of the “Dusenberry Effect” basically states that consumers do not give up their consumption patterns very easy even if their incomes decline.   They, in effect, “ratchet” down their living standard very slowly by first having a second wage earner enter the workforce as we saw in the 1970’s when women began to enter the workforce en masse and then by taking on debt to finance their previous standard of living.  — GMM,  August 2017

Whatever the case, the Bottom 50% carry a huge relative debt burden, 81.1 percent of assets, compared the 17.1 percent of the households in 50-90% percentile, the next most indebted group.

The data also clearly illustrates why debt forgiveness is a major focus of today’s populist message,  even among the so-called moderate presidential candidates.

Democratic presidential frontrunner Joe Biden laid out his higher education platform today. There’s a lot in there, but I want to focus on one part: his proposal to make the income based-repayment (IBR) program for federal student loans more generous by cutting payments to just 5% of discretionary income. 

– Forbes, October 8th

When The Bottom 50% Was Insolvent

In an earlier post, we showed how the Bottom 50%, on an aggregate basis (i.e., not every household) was insolvent during several quarters just after the financial crisis. Interestingly, we found what initially brought the percentile group back above water was a sharp reduction in its liabilities, which we suspect was getting out from under their bad mortgage debt either through foreclosures or debt forgiveness programs.

Household Allocation Of Assets

We leave you with the following data on how each percentile group’s assets are allocated.  When the power comes back off we’ll have more commentary.

Main Observations

– The Top 1% are the ownership class, holding 60 percent of their assets in equities and equity in non-corporate businesses

– Pension entitlements make up almost 30% of the assets of the 90-99% percentile of households with 40% of their assets allocated to equities and real estate holdings

– The 50-90% percentile group hold almost two thirds of their assets in pensions and real estate with only 8.6 percent held in equities

–  More than 70 percent of the Bottom 50% assets are held in real estate and consumer durables, such as autos, and only 2.9% in equities

Growth Of Asset Holdings

Interesting that the net worth of the top three percentiles outpaced the S&P500 and the Case-Shiller national home price index.  This clearly reflects the accumulation of assets through savings.   Also interesting the outsize growth of short-term assets by the Top 10%, which partially reflects the start date was the March 2000 peak of the dot.com bubble and the latest news that the rich are now hoarding cash.

Upshot

It’s coming in the final print.  Stay tuned.

House Speaker Nancy Pelosi (D-CA) is in a tough spot. After caving in to pressure from her party to launch an impeachment inquiry based on a CIA ‘whistleblower’ report that Trump abused his office to pressure Ukraine into investigating 2020 rival Joe Biden, Pelosi must now decide on whether to proceed with a formal vote amid mounting evidence that Trump did nothing wrong. 

Trump has pushed for a vote – which would allow Republicans to issue subpoenas, as well as grant the White House the ability to cross-examine witnesses. To that end, the White House outlined in a Tuesday letter that they will refuse to cooperate with an inquiry that is “invalid” due to Pelosi’s refusal to make it official. 

“Never before in our history has the House of Representatives — under the control of either political party — taken the American people down the dangerous path you seem determined to pursue,” wrote White House counsel Pat Cipollone. 

Think about if you went through a trial, but you weren’t allowed to call any witnesses. That’s what Speaker Pelosi is doing to President Trump right now.

This entire process is a sham. pic.twitter.com/MNlc3H4zOQ

— Kevin McCarthy (@GOPLeader) October 5, 2019

When asked on Wednesday if he would cooperate with Pelosi’s impeachment inquiry, Trump told reporters “we would if they give us our rights, it depends.” 

Pelosi, meanwhile, says the effort to force a vote is nothing more than a “Republican talking point.” 

“If we want to do it, we’ll do it. If we don’t, we don’t. But we’re certainly not going to do it because of the president,” said Pelosi in an interview last week with the Atlanta Journal-Constitution. 

A decision whether to call the president’s bluff is likely to be a main topic when Pelosi convenes a conference call with House Democrats at the end of the week. Representative Dan Kildee of Michigan, one of the leadership’s vote counters, said Democrats could easily pass a resolution authorizing the impeachment inquiry with as many as 230 votes.

…

With the White House vowing to block any cooperation, Pelosi is scheduled to hold the conference call on Friday to chart the next steps. The committees conducting the investigation have already issued a salvo of subpoenas for testimony or records directed at administration officials such as Secretary of State Michael Pompeo as well as Trump’s personal lawyer Rudy Giuliani. –Bloomberg

“We continue investigating and digging to uncover more of the truth. Nothing has changed,” said Pelosi spokeswoman Ashley Etienne on Wednesday, adding that Democrats have yet to settle on legal or tactical responses to the White House letter. 

Pushback

House Republicans led by Minority Leader Kevin McCarthy of California have been “using ads, press releases and other efforts to hammer Democratic House members from GOP-leaning districts over impeachment,” according to Bloomberg. 

Trump and Republicans also have complained about the fairness of the process, citing closed-door hearings, and what they say are limitations by committee Republicans to subpoena their own rebuttal witnesses, or for the White House to have legal counsel in the room during depositions. –Bloomberg

According to Rep. Jim Jordan (R-OH): “If Democrats were interested in fairness, they would follow the same process as previous impeachment proceedings. Instead, they just make up the rules as they go along.” 

Quid Pro Nope

The House impeachment inquiry was launched after a CIA officer reported that President Trump pressured Ukrainian President Volodomyr Zelensky to investigate Joe Biden and his son Hunter for alleged corruption. 

After Democrats uncritically launched their impeachment inquiry based on the initial whistleblower report, the White House upset their strategy – releasing a transcript of the call between Zelensky and Trump and the whistleblower complaint itself – plain readings of which reveal that Trump did not threaten, pressure or suggest a quid pro quo in exchange for a Biden investigation. Furthermore, Zelensky himself has said as much. 

So as the case against Trump continues to unravel, Pelosi and the Democrats have some tough decisions to make as we head into the 2020 election. 

 

It would appear the algos are alive and well after all.

President Trump tweeted that he will be meeting the China Vice Premier tomorrow:

“Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House.”

Thus, for now, confirming that Liu He is staying until Friday… and the machines like that news…

And yuan is rallying…

Source: Bloomberg

 

Submitted by Michael Every of Rabobank

Yesterday I was watching a video of Yale History professor Timothy Snyder in which he states “It’s patently clear that some of the people who’re involved in current politics…are borrowing some of the tactics of the 1920s and 1930s.” That came hours after discussing another article comparing the political talk in the UK to the rhetoric of Joseph Goebbels. And look at today’s headlines: “Turkey begins offensive against US Ally in Syria”; “Fed worried about rising economic risks from trade war”; “EU offers ultimatum to Johnson on Brexit plan”; “India and China face off over Himalayan flashpoint”; and “Two Killed in Germany Shooting After Failed Attack on Synagogue.”

I published an in-depth report early in the year all about political populism. The key message was we are seeing echoes of the 1920s and 1930s in today’s politics because we echo the economics of the 1920s and 1930s. We had a debt-driven Gilded Age boom prior to 2008 analogous to the Roaring 20s – and then a colossal bust, analogous to 1929. Since then we have failed to work out how to deal with the debt overhang, or to co-ordinate a global recovery between countries (so all boats rise) and within countries (so all boats rise, not just yachts). We haven’t worked out how to ensure capital circulates sustainably internationally or domestically.

As a response, the “will of the people”, “us vs. them”, ‘walls over bridges’ are back: and, most worrying, now as then, for sound underlying reasons. People didn’t just slip into madness in the 1930s: as Arendt makes clear, if “normality” offers you are a raw deal, you will opt for an alternative. What is being sold via today’s populism may not be a solution: yet neither is the status quo ante. Indeed, we repeat our errors. For example, take the Fed, its history and its present.

History: The Fed allowed the 1929 crash to happen–or rather failed to stop French mercantilism driving us towards the 1929 crash, and then failed to put in place appropriate policies afterwards. It took fiscal expansion to stop the Great Depression bringing down US capitalism. However, the Fed believed the US economy had turned the corner in 1937 and started to raise rates – and was wrong, bringing the economy to its knees again. It was fiscal reflation via WW2 rearmament that then saved the day.

Present: The latest Fed minutes, covered here by our spot-on Fed whisperer Philip Marey, show another October rate cut is certain. Moreover, Philip sticks with his view that Fed Funds will be slashed all the way to zero before the end of 2020 as the US slides towards recession. And what kind of political backdrop, in terms of fiscal policy and defense spending (and/or the equally existential battle of a Green New Deal) do we see emerging? Exactly.

Furthermore, there are other parallels between the 1920s and 1930s and now. Again, the West is cash-strapped and less confident in itself and its economic vitality, war-weary, and unwilling to physically fight against more aggressive forces. Here’s a particular echo on those fronts.

One of the crowning glories of 1940 cinema is Charlie Chaplin’s ‘The Great Dictator’, in which he plays a gentle Jewish barber as well as his look-a-like, the moustachioed European dictator Adenoid Hynkel. Hollywood holds it up as an example of US freedoms….which overlooks the fact that when Chaplin was making the film Nazi Germany was still a key export destination for movies – and so no studio would finance it. Chaplin had to fund most of the production with his own money to get it made: it proved a hit and was then embraced, and more so after WW2 started. As the barber pleads to Hynkel’s massed armies at the end of the movie:

“You, the people, have the power to make this life free and beautiful, to make this life a wonderful adventure. Then, in the name of democracy, let us use that power; let us all unite. Let us fight for a new world, a decent world that will give men a chance to work, that will give youth a future and old age a security. By the promise of these things, brutes have risen to power. But they lie! They do not fulfill that promise. They never will!

Dictators free themselves but they enslave the people! Now let us fight to fulfill that promise! Let us fight to free the world, to do away with national barriers, to do away with greed, with hate and intolerance. Let us fight for a world of reason, a world where science and progress will lead to all men’s happiness. Soldiers! in the name of democracy, let us all unite!”

All that is missing is a model for how one can do that AND ensure that capital circulates domestically and internationally. Meanwhile, the NBA and South Park (and Tiffany and Marriot and Delta, etc., etc.) issue over US freedom of speech vs. Chinese sensibilities has now escalated to the extent that a bipartisan group of US members of Congress have penned an open letter to the NBA president stating “It is outrageous that the Communist Party of China is using its economic power to suppress the speech of Americans inside the United States,” criticizing the NBA for failing to put “fundamental democratic rights ahead of profit” and for being ill-equipped to deal with the foreseeable “challenges of doing business in a country run by a repressive single party government.” The bipartisan group also makes four requests of NBA President Silver: Build upon the October 8 statement “the NBA will not put itself in a position of regulating what players, employees, and team owners say or will not say on these issues”; Suspend NBA activities in China until it ends a boycott of NBA activities; Re-evaluate the NBA’s training camp in Xinjiang, where up to a million Chinese citizens are held in concentration camps; and Clarify public commentary on international human rights repression–including Tibet, Hong Kong, and Xinjiang–falls within expected standards.

In short, not only are US-China trade talks going badly–so badly they are going to end early–but the political mood is now moving towards a broad-spectrum confrontation over economic power and the political values it can then (great) dictate – again not a surprise to us given our long-standing argument that this was never about trade per se.

From a markets perspective, The Great Dictator continues to tell us long USD and short EM FX, particularly those getting involved in trade wars or real wars. That the Fed can be cutting rates and doing NOT-QE4 and the USD still be holding up is a real signal there. Furthermore, on the rates front, lower for longer still rules – if history is any guide at all. Of course, “history doesn’t repeat itself, but it rhymes” – and The Global Daily does repeat itself, and doesn’t rhyme.

After last night’s utter chaos as algos chased headlines, this morning’s headlines from The South China Morning Post further reduce expectations for any kind of deal getting done before the Chinese leave (today or tomorrow) as despite optimism from The White House, the Chinese appear to view prospects for a deal very dimly.

Chinese diplomatic observers have played down hopes for any meaningful outcome, citing growing tensions in non-trade sectors and big differences in long-debated issues.

“The US has not changed its extensive and rigorous requests for China, nor has it responded to China’s core concerns,” Renmin University international relations professor Shi Yinhong said.

“Even if there is a deal, it could only be a mini-deal, even a minimal mini-deal. A currency pact, if true, does not bring any substance.”

Other analysts confirmed there was little hope of a breakthrough in this round of negotiations.

“Even if a deal can be reached, the US can find any excuse at any time to impose sanctions over China’s trade practices or on Chinese companies,” said Lu Xiang, a research fellow on US issues with the Chinese Academy of Social Sciences.

“The US administration is in ‘a confusion of trivialities’ and it lacks consistency … making it hard for China to have confidence in it.

We can talk, but we are not hopeful. It would be very good if a partial deal could be reached, but a comprehensive deal as defined by the US is unlikely.”

But, as yet, traders are shrugging this off…

Maybe the machines are exhausted?

Owners of the company’s products should understand that, if you own any device equipped with Amazon’s Alexa – or “NSAlexa” – digital assistant, the e-commerce giant likely has access to some of your most private, intimate moments.

Earlier this year, the company was exposed for allowing thousands of employees to listen in on the private conversations of Echo speaker owners. Amazon’s Alexa digital assistant is no better than a spy monitoring and recording users’ conversations and reporting back to a team of dedicated handlers tasked with “improving” the product.

Anybody who isn’t already in the know should get used to the idea that Alexa is eavesdropping on you. Anybody who doesn’t believe us should take a look at the cache of recordings stored on their Echo devices.

Now, Bloomberg reports that another Amazon device, the Amazon “Cloud Cam”, has been storing recorded footage and sending it back to the mothership to be reviewed by a squad of employees hoping to improve the company’s “AI” technology.

According to BBG, the goal is to help the ‘Cloud Cam’s differentiate between a ‘real threat’ – like a home invader – and a false alarm (already, that’s a lot of responsibility for an algorithm to handle).

Dozens of Amazon workers based in India and Romania review select clips captured by Cloud Cam, according to five people who have worked on the program or have direct knowledge of it. Those video snippets are then used to train the AI algorithms to do a better job distinguishing between a real threat (a home invader) and a false alarm (the cat jumping on the sofa).

During a typical day, Amazon’s team of AI algorithm testers comb through up to 150 30-second clips, according to the anonymous sources who spoke with Bloomberg.

AI has made it possible to talk to your phone. It’s helping investors predict shifts in market sentiment. But the technology is far from infallible. Cloud Cam sends out alerts when it’s just paper rustling in a breeze. Apple Inc.’s Siri and Amazon’s Alexa still occasionally mishear commands. One day, engineers may overcome these shortfalls, but for now AI needs human assistance. Lots of it.

At one point, on a typical day, some Amazon auditors were each annotating about 150 video recordings, which were  typically 20 to 30 seconds long, according to the people, who requested anonymity to talk about an internal program.

An Amazon spokeswoman said the clips are voluntarily submitted by users for “troubleshooting” purposes. Though there’s nothing in the ‘Cloud Cams’ term and conditions informing users that these clips are shared with human workers, who use them to train their motion-detection software.

The spokeswoman added that Amazon takes privacy “seriously”.

The clips sent for review come from employee testers, an Amazon spokeswoman said, as well as Cloud Cam owners who submit clips to troubleshoot such issues as inaccurate notifications and video quality. “We take privacy seriously and put Cloud Cam customers in control of their video clips,” she said, adding that unless the clips are submitted for troubleshooting purposes, “only customers can view their clips.”

Nowhere in the Cloud Cam user terms and conditions does Amazon explicitly tell customers that human beings are training the algorithms behind their motion detection software.

According to the company insiders who spoke with BBG, Amazon’s insistence that users are aware of what they’re sharing doesn’t jive with the fact that the company’s teams of algo testers have occasionally received clips of couples having sex, an activity that homeowners probably don’t want shared with dozens of strangers.

And despite the tight security imposed by Amazon, some of these more risque clips have occasionally leaked out and been shared by others within the company.

Amazon’s Cloud Cam debuted in 2017 and, along with the Alexa-powered line of Echo speakers, is one of a handful of gadgets produced for the ‘smart home’ market, which Amazon hopes to dominate (remember all that fuss about the ‘Internet of Things?’ Well, this is it).

Authored by Peter Ganry via Saxo Bank,

Summary: 

The majority of macro indicators are pointing lower and increasing the likelihood that the global economy is already or close to a recession. More evidence from companies is released everyday indicating that Q4 is shaping up to be a “kitchen sink” with layoffs and asset write-downs. This means that negative macro dynamics will now most likely spread to the broader services economy and employment, and thus the chain reaction has now started making a deal or no deal between the US and China irrelevant. In today’s equity update we also discuss how to invest in the contraction phase of the business cycle.

*  *  *

Intraday equity volatility has accelerated in October on changing trade deal news flow. Every day brings a new measure from the US or China ahead of today’s talks and threats of retaliation. The tone and direction have not been worse in our opinion between the two countries and while the narrative is building around a narrow trade deal to backstop the most imminent pressure from the trade war it will not matter. The S&P 500 has lost momentum and judging from the past weeks price action the short sellers are in control pushing the index down. We expect US equities to continue lower in the fourth quarter as the earnings season will deliver far worse numbers than expected with an outlook in complete disarray.

Everyone talks about a trade deal, but we are far beyond the point where it matters. The havoc from the trade war has happened evident in the constant declining macro numbers. The slowdown has lasted long enough now that companies are losing their patience and as a result, they will begin layoffs and asset write-downs (the “Kitchen Sink” theory”) in Q4 which will then begin to show up in broader macro series on the services sector and employment. This will in turn take down investments and with-it GDP growth causing the economy to slip into a recession, and it will show that central banks have been behind the curve all along. The reason is simple. All central banks are run on models fitted to an economy from the 1970s. After the 2008 crisis the models were updated with new credit models to reflect the negative feedback loop that central banks missed leading up to the financial crisis. But this recession starts with a trade war and thus the models have no visibility to what’s going on.

As our Chief Investment Officer, Steen Jakobsen, has been saying negative yields and QE are a policy disaster and the restart of the ECB QE programme was a mistake. There is no evidence that these policies are working and thus the coming ECB president Christine Lagarde will be forced to clean up after the current ECB president Mario Draghi. Financial Times is bringing a story today that Mario Draghi restarted the QE programme despite the monetary policy committee’s advice not to. This override has caused great divide inside ECB and Europe and Lagarde will be on a mission to fix it. Our view is that ECB will take rates back to zero and leave negative yields as a failed experiment with the help of Europe’s governments starting to expand fiscal policies.

OECD released its global leading indicators (CLI) for August on Tuesday and the indicators declined for the 20th straight month making it the longest slowdown since the financial crisis. The 2007-2009 global economic slowdown also lasted for 20 months although much more severe in magnitude. Our historical analysis of the economic cycle and equity performance shows that the current contraction phase (economic growth below trend and slowing) is the most difficult phase to navigate as an investor. Data since 1973 show that equities on average deliver the same return as government bonds in this phase of the cycle but it comes with high variance.

Since the financial crisis financial markets have become more managed by policy makers and any slowdown has been fiercely fought by central banks. As a result, the previous three contractions in 2011, 2012 and 2015/16 all saw equities outperform bonds which is unusual measured against the period before the financial crisis of 2008. The current contraction phase that started in 2018 has so far also seen equities in general outperform bonds making it potentially the longest winning streak of equities outperforming bonds during contractions.

Our main scenario is that the global economy will slip into a recession and equities will see a typically 20-25% drawdown before the leading indicators turn. However, as our Saxo Business Cycle Map shows the best equity markets in the following recovery phase are cyclical developed markets such as Sweden, Netherlands, Australia and Hong Kong, and then pretty much all emerging markets.

Evidence that the Kitchen Sink phase has started has accelerated recently with big layoffs announced by HSBC, Deutsche Bank and Seven & I. In addition, profit warnings have accelerated with recently FedEx and today from Philips seeing its shares down 10%. The Dutch hospital equipment maker warned today of lower EBITDA margin in FY19 due to higher tariffs and issues in its Connected Care division.

Following the unexpected plunge in producer prices, analysts expected consumer prices to rebound in September, but it didn’t as CPI was unchanged MoM and up 1.7% YoY (less than expected).

 

Source: Bloomberg

Goods price inflation slowed as services prices rose…

Source: Bloomberg

Under the hood, used car prices plunged.

The index for used cars and trucks declined in September, falling 1.6 percent. The apparel index fell 0.4 percent in September after rising in each of the prior 3 months. Also declining in September were the indexes for new vehicles, for communication, for alcoholic beverages, and for personal care. The recreation index was unchanged in September after rising in August.   

This is the third biggest drop in used car prices since the financial crisis…

But shelter index continued to rise, increasing 0.3 percent in September following a 0.2-percent increase in August. The index for rent rose 0.4 percent and the index for owners’ equivalent rent increased 0.3 percent. The index for lodging away from home increased 2.1 percent in September after falling 2.1 percent in August.   

Once again the promised surge in prices due to Trump’s tariffs remain entirely absent from the headline index.

Authored by Mike Shedlock via MishTalk,

Businesses are bracing for for sweeping changes, none of it any good.

Democrat front-runner Elizabeth Elizabeth wants to Remake Capitalism From the Ground Up. It would help if she had a clue what capitalism is all about.

A President Warren would seek to regulate big tech companies as utilities, break up big banks and split them from securities dealers, ban fracking of oil and gas, phase out carbon emission from buildings, cars and power plants in eight to 15 years, require big companies to appoint worker representatives to at least 40% of board seats, ban private health insurance and, effectively, for-profit college, and negotiate down drug prices.

Her policies would directly affect companies with sales of nearly $5 trillion and stock-market value of more than $8 trillion, a third of the S&P 500 stock index. Taxes on the wealthy and corporations would rise sharply.

“She could create an environment where it is next to impossible to function” for health insurers, said Vicky Gregg, a former chief executive of BlueCross BlueShield of Tennessee and now partner in a private-equity firm. “There’s no question that keeps you up at night if you’re a health-plan executive.”

Ms. Warren, in laying out her case, has said she is “a capitalist to my bones,” whereas fellow candidate Sen. Bernie Sanders calls himself a “democratic socialist.”

“I love what markets can do, I love what functioning economies can do. They are what make us rich, they are what create opportunity,” Ms. Warren said on CNBC last year. “But only fair markets, markets with rules. Markets without rules is about the rich take it all, it’s about the powerful get all of it. And that’s what’s gone wrong in America.”

Healthcare is a Right?!

Capitalist to the Bones, My Ass

Wen you start preaching “free” education, “Medicare for all” , ban private insurance, and demand businesses put workers on boards, you are preaching anything but capitalism.

Yet, Warren claims to be “capitalist to my bones.” In what alternate universe?

This is seriously scary stuff.

As fighting ramps up in northeastern Syria following Turkey’s armed incursion into territory held by the Kurds, President Trump made clear during a press conference Wednesday night that, while Washington has threatened to punish Turkey for attacking the Kurds, President Trump doesn’t feel any deeper loyalty to the one-time “tip of the spear” in the fight against ISIS.

But President Erdogan wants Europe to understand that if it pursues sanctions or other punitive measures against Turkey – or even if European leaders complain too loudly – he won’t hesitate to release millions of Syrian refugees and allow them to start making their way to Europe, which is still struggling with the ramifications of the last wave of Syrian refugees.

According to BBG, Erdogan said he would “open the doors” for 3.6 million refugees currently in Turkey to seek shelter in Europe, should his country face criticism.

Erdogan’s threat comes as Turkish troops begin their advance into northeastern Syria (Erdogan has asked European leaders not to call this an ‘invasion’). So far, he has faced intense criticism from European nations and nearby Arab states.

The Turkish lira, and Turkish assets like stocks and foreign-currency bonds, have slumped in the wake of the invasion, with the Turkish currency trading near its weakest level since August.

Ankara has said the operation, which was given the green light by the US over the weekend, is intended to force back Kurdish militants along the border area while targeting ISIS militants. But since ISIS has been stripped of all its territory in the region, many who oppose the Turkish incursion believe the claims of going after ISIS and preventing the creation of a “terror corridor” are merely a ruse.

The Turkish Armed Forces, together with the Syrian National Army, just launched #OperationPeaceSpring against PKK/YPG and Daesh terrorists in northern Syria. Our mission is to prevent the creation of a terror corridor across our southern border, and to bring peace to the area.

— Recep Tayyip Erdoğan (@RTErdogan) October 9, 2019

Turkish F-16 warplanes and artillery units have struck at least 181 targets so far. At least 19 Kurdish militants have been killed since the Turkish assault began, while 38 have been wounded. Meanwhile, a group of American senators from both parties have promised to try and punish Ankara over the incursion.