Month: September 2014

Submitted by Simon Black via Sovereign Man blog,

The polls in Scotland will close this week on one of the more important elections in recent history… perhaps one of the only elections that actually matters.

Rather than a typical vote to see who the captain of the Titanic will be, Scots are deciding whether they want to be free and independent from the UK.

Every eligible voter has a say, and a simple majority decides the outcome for everyone else.

By definition, this is the PUREST possible form of the democratic process.

What’s ironic here is that ‘democracy’ is typically held up as the hallmark of free society.

Western nations have spent years (and trillion of dollars) force-feeding representative ‘democracy’ down the throats of developing countries at gunpoint.

Opening his second Presidential term in 2005, George W. Bush famously told the world that “it is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture. . .”

Given the west’s big love for democracy, you’d think this instance in Scotland– the most fundamental example of the democratic process– would be able to take place free, unfettered, and uninfluenced by government.

Government, in fact, is supposed to be the responsible steward to protect and champion democratic rights. At least, that’s the BS they’re constantly selling us.

But that’s not what’s happening.

British politicians are scared to death that Scotland will file for divorce. So they’re doing everything they can to influence the outcome of this supposedly impartial democratic process.

They’ve spent an incalculable amount of money trying to influence the outcome, effectively subverting a democratic election.

Their claim is that the government knows better than you do. They say they’re doing this for your own good. If Scotland breaks away, your children and grandchildren will suffer immeasurably as a result.

In other words, you NEED US TO TAKE CARE OF YOU. You cannot function without us being in charge of you.

The British government is spreading untold fear, paranoia, and propaganda to drive this point home, all in an effort to influence the outcome of a supposedly free and fair election.

It’s incredibly hypocritical. And the government’s desperation drives home how fragile this system really is.

They know how much weaker and impotent they’ll be if Scotland becomes independent. And they’re terrified of it.

But here’s the thing– this isn’t even the real story. The outcome of the election is irrelevant.

The real issue here is that this election is even happening at all.

Bear in mind that human nature is highly resistant to change. This is the way of the universe.

Sir Isaac Newton told us that an object at rest tends to stay at rest unless acted upon by an external force of sufficient enough to overcome the object’s inertia.

In chemistry, activation energy is defined as the minimum energy needed to be input in order to produce a chemical reaction.

A wooden log in a fireplace doesn’t spontaneously combust. You must first add sufficient energy (heat) to the system before the wood will burn.

Until that activation energy is reached, no reaction will occur.

Humans are the same. Our natural state is to remain at rest. Overcoming our inertia is incredibly difficult. Doing so requires tremendous energy. And motivation.

The fact that millions of people in Scotland are even considering rocking the boat and radically change is very telling.

It shows there is a deep, deep dissatisfaction with the status quo. People are sick and tired of the way things are. The system has completely failed them. And they want change.

This is huge. And it’s a sign of things to come.

The dissatisfaction is growing worldwide. As I reported yesterday, the latest Gallup numbers show that only 23% of Americans are satisfied with the direction of the country.

Change is coming. And not just any change. Deep, radical change– a fundamental reset in the way we do business, the way we organize ourselves as societies, and the way we view money.

There’s tremendous opportunity for people who understand this trend and stay in front of it. And frankly I think this makes it a very exciting time to be alive.

I invite you to spend some time with me this afternoon exploring this incredibly important issue in our latest Podcast episode. (click  image for link)

via Zero Hedge http://ift.tt/1mfBysD Tyler Durden

Obviously, today's market was all about the Fed. some brief stop-running early on took out yesterday's highs only to fall back before Yellen… then the fireworks began. The initial kneejerk reaction was to sell stocks, sell bonds, and buy USDs. Then came the re-reaction – VIX was slammed below 12, the S&P 500 surged to near intraday record highs, bond yields accelerated higher, EUR and JPY weakness sparked USD bid, and PMs slipped lower as Yellen meandered uncomfortably through a two-faced press conference. By the close, the USD had hit fresh 4-year highs (USDJPY over 108), stocks had roundtripped to unchanged from FOMC, Treasury yields were notably higher, VIX back over 12.5, Trannies surged.

 

From the FOMC Statement, stocks dumped, pumped, and dumped

 

And from Hilsenrath's hint yesterday… Trannies are exploding…

 

The S&P 500 smashed to near-record highs, then faded back to 2,000 (and bounced)

 

VIX dumped below 12 to help stocks… then gave it all back…

 

Across the major asset classes today…

 

On the week, Treasuries are now all higher in yield, led by 30Y

 

The USD surged to fresh 4-year highs

 

which pushed commodities lower in general…

 

Charts: Bloomberg

via Zero Hedge http://ift.tt/1u9kQdi Tyler Durden

Authored by Charles Gave via Evergreen Gavekal,

Markets are on alert in a week that could see more great insights from the gods of central banking on high. Investors seem a little spooked with the MSCI emerging markets index off 4% in the last eight trading days, while currency volatility has picked up as the US dollar has strengthened. And yet despite these minor ructions, there remains a deeper sense of calm. It is the sort of quiescence born of insiders’ knowledge that the nature of financial markets has changed, and in a way that favors them.

In the past, money sat at the center of the economic system. When money was created, it moved slowly through the real economy toward the fringes where assets were located. Too much money caused a bull market; too little and we got the reverse. Now asset prices sit at the center of the system and money is relegated to the periphery. Every right-minded person knows the main role of a central bank is to create sufficient money to stop asset prices going down, because if this can be achieved then a little of that elixir may just flow into the real economy and create growth.

Indeed, talk to a central banker, preferably a retired one, and they will admit that they have one long term goal which is to stop asset prices from going down the following week. This is because so much debt is linked to these assets that should prices start to fall then the mother of all margin calls would materialize. Most central bankers have read Irving Fisher’s great 1934 tome The Debt Deflation Theory of Great Depressions and they don’t want something similar starting on their watch.

To achieve the desired results, central banks have bought bucket loads of government bonds, on the simple idea that if the anchor rate was pulled down, then all rates would follow including the discount rate used to value long-dated assets, and thus the value of the said assets would go up. In the case of equities, the particular traits of investors in these markets has meant that central bankers could play a more indirect role.

Today, most money managers can be described as having five core beliefs, or at least operating principles:

(i) it is not certain that central banks can control asset prices forever and it could end in tears;

 

(ii) I am one of the few investors smart enough to understand this;

 

(iii) most other money managers are dumb enough (especially the indexers) to believe that central banks really can control asset prices;

 

(iv) so despite being very smart, and knowing better, I have to keep buying shares, but

 

(v) because I am very smart, I will see ahead of the others when the time is right to get out, and in any case I have some very good risk control systems which will kick in and prevent me suffering too huge a loss.

The astute reader will have recognized a sophisticated version of the prisoner’s dilemma taken from game theory; i.e., the system continues to work so long as nobody breaks the rules. However, to escape the dilemma in good shape, it is necessary to be the first one to break the rules.

The implicit reasoning in this assumption is that if the investor cannot be first out then they can at least be second or third.

However, such a stance rests upon two key assumptions that are less than rock solid.

• The money manager in question has the insight or the algorithms to get out of the market in good time, and this early warning system will be different from the system used by rivals. We saw this proposition tested in 1987 and the results were not pretty. When the sell notices all kick in at the same time, there will be no exit.
• Markets will remain open and will be tradable. I recall that in October 1987 that the Hong Kong stock market simply closed its doors for four days and when it did re-open prices were not the same.

In short, it may make sense to stay invested, but we have reached a point where protection against an untidy denouement to the present market phase should be built into the construction of a portfolio. It is not enough to rely on a protection that will be executed in response to price signals.

In constructing what Nassim Taleb would call a “non-fragile” portfolio my simple recommendation would be to remain long US bonds and short-dated dim sum bonds. Those wanting to maintain an equity component to the portfolio should stick with Asian and US shares.

It should be noted that a 50/50 portfolio of long-dated US treasuries and short-dated dim sum bonds has outperformed the S&P 500 since November 2013 by a solid 4%, and with much lower volatility. When a very defensive portfolio starts to outperform the best stock market in the world, it is seldom good news.

via Zero Hedge http://ift.tt/1tgZi0A Tyler Durden

Hot on the heels of yesterday’s low PPI and this morning’s falling CPI, we thought it worth noting (given The Fed’s pre-occupation that inflation is running too low) that the price of milk – that staple of the American diet – just hit an all-time high. Nope, no inflation here…

 

 

As an aside, while correlation is not causation, the price of milk and the growth of the Fed Balance Sheet have an 82% correlation since March 2009.

 

Chart: Bloomberg

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