Month: October 2016

Submitted by Michael Shedlock via MishTalk.com,

The word of the day is “ugly”. That’s how Steen Jakobsen, Saxo Bank CIO and chief economist describes the US presidential campaign, broken social contracts, public debt, and productivity.

Things are so ugly, Jakobsen says “failure is almost guaranteed” regardless of who wins the election.

This is a guest post by Steen Jakobsen. The original appears at US Election: Nothing to lose — #SaxoStrats

US Election: Nothing to Lose

My present macro speech is titled “Ugly: Don’t fight with ‘ugly’ people as they have nothing to lose”.

To me, this is the essence of the US presidential campaign. The ugly truth surrounding this ballot lies in the bigger picture, as whomever becomes president will go down in history as the “non-president” – the president who made us need, see, and demand something else.

For all of the colourful headlines, and the almost McCarthy-esque pursuit of Trump by mainstream media, this is not going to be about “Trump, the person” or his more or less moronic views; Trump merely represents the catalyst for change. He is the anti-establishment candidate, yes, but not our vision for the future.

Ultimately, Trump may still win despite (rather than because of) being… Trump.

That does not excuse mainstream media for not going after Clinton. If elected, she will be the least-liked president in US history, and I doubt any of her policies will do anything good for America.

More Barack Obama-type policy is not what the world needs. Obama may have created more jobs, but the average income for American has actually fallen during his presidency. What does this mean? It means he has presided over an economy that has created more jobs but less valuable ones, and growth during his tenure has been lower than during any other president, with the largest build-up in debt.

I am pretty sure that even this economist could create jobs with the amount of money Obama has spent!

Mind you I am 100% agnostic, politically-speaking. In fact, I don’t even think this election really matters! No, this is not a new trend; no, Clinton is not the answer… but what this is a generational repositioning and renegotiation of the social contract.

The last time that this happened was in the 1960s, when the children of World War II went for peace, love, and a lot of drugs. Now we have the Berlin Wall generation coming of age, and this time the focus is anti-globalisation and anti establishment sentiment… and yes, again a lot of drugs.

The real election issue in America, but also in Europe. is how to deal with a broken social contract. Society has been pushed so far away from its natural equilibrium in terms of markets, social homogeneity, equality, and productivity that the move back to “normal” will bear both a political price and a penalty in terms of growth and outlook.

Put differently, when we look throughout history we know that part of the process of evaluation is to smell, feel, taste, and experience what we don’t need in order to move towards what we do – a better version of society, but mainly a better one of ourselves.

The next election cycle is about protest; it will be followed by crisis and then new beginnings.

I firmly believe, and have repeatedly focused on the fact, that we as human beings need to fail in order to create a mandate for change. With regards to this dynamic, the US presidential campaign comes up short in many categories except one: failure is almost guaranteed.

If Clinton wins, the probability of a recession increases immediately and big business with return to a ’70s-like state under a Politburo-esque White House.

If Trump wins, we will have taken the fast track to massive political upheaval as the end of the Democratic/GOP monopoly on politics shifts towards a social agenda against globalisation, openness, and trade… the only good thing to come out of such a change would be the fact of change itself.

This US elections will not have any winners, only losers – but don’t despair. The US and the world economy will come back, and with surprising strength, but the political timeline is now finally aligned with the economics malaise created by central bankers. By this I mean that the corresponding low points in politics, economics, interest rates, and inflation, and the high points in terms of financial asset valuation and inequality, are coming to an end.

Volatility and uncertainty will be high the next over the next nine months (through the German election) but in the end, talk must cease and reality must reassert itself.

This is the best news of all. By accepting that the social contract is in dire need of being corrected, we could see a strong V-shaped recovery as early as the US midterm elections of 2018.

Voters are the ones with nothing to lose, not the ugly. This time around, change is what they crave; understand this and you will navigate the next election cycle with confidence.

Steen Jakobsen is chief economist and CIO at Saxo Bank

Mish Comments

Removal of a single word will make the title more accurate: “Failure Almost Guaranteed”.

• Trade policy will be a disaster under either Hillary or Trump.
• Hillary is far more likely to start a major war.
• Neither has a realistic plan to reduce the deficit.
• Hillary will not fix Obamacare, she will make it worse.
• Congress might not let Trump start over on Obamacare.
• Hillary will support freedom of choice, Trump won’t.

Not a Coin Toss

This is not a coin toss. Hillary’s supreme court nominations will be a guaranteed abomination.

This is a case of heads you lose, tails you lose more, possibly to the point of getting into a war with Russia under Hillary.

In disagreement with Steen’s assessment “In fact, I don’t even think this election really matters!” I propose the election does indeed matter, for several reasons, even though I agree we all lose because both candidates have serious issues.

V-Shaped Recovery?

I question Steen’s “strong V-shaped recovery” by 2018 thesis.

Why? I fail to see how we get any meaningful reform under Hillary. I also fail to see central banks doing anything other than repeating the same mistakes they have made for the past three decades.

Look at demographics in Europe and Asia. Look at housing bubbles in China, the UK, Australia, and Canada.

Structural problems are massive. Risk of a collapse in trade is very real. What is going to fix the Eurozone?

If the “V-shaped recovery” depends on a “crash” then we may indeed see a strong recovery, but from where to where, and what about pension assumptions of 8% annualized?

Yes, it’s ugly!

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US treasury yields are extending their earlier spike (from UK GDP) with 30Y up 5bps on the day (and the curve steepening). While historical correlation between stocks and bonds has come in a little, it appears risk-parity unwinds are also hitting as US equity markets have dumped at the open also…

Deleveraging across US complex in stocks and bonds…

 

As the long-end yields push to fresh 5 month highs…

 

And sure enough – just as we said – oil erased its spike after humans read the Russian headlines…

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As part of the latest edition of Wikileaks Podesta emails, we find an interest tidbit contained in a July 25, 2015 email from Clinton aide Neera Tanden to Campaign Chairman John Podesta, in which the two discuss recent CNN polling which shows Bernie Sanders catching up to Hillary:

I’m doing jake tapper and they have a national poll coming out.  They wouldn’t tell me results but if I had to guess it – discerning from our prep call -will show Bernie doing pretty well w Hillary and doing as well against Jeb or close to it.

To which Podesta replies “can you imagine what the Republicans would do to him if he were the nominee?”leading to Tanden saying “Well, let’s see what the poll actually says. Let’s hope the Democratic party is not suicidal”

However the curious part is revealed in Tanden’s follow up, in which she again blasts Hillary’s decision to have a private server as follows:

Do we actually know who told Hillary she could use a private email?  And has that person been drawn and quartered?

We agree with her parting thoughts: “Like whole thing is fucking insane.”

via http://ift.tt/2eJmD8v Tyler Durden

Oil prices are spiking after headlines hit stating that “SAUDI, GULF OPEC ALLIES MAY CUT OIL OUTPUT 4% FROM PEAK:REUTERS.” However, it appears the machines missed the rest of the stories, beginning with “RUSSIA TOLD GULF/OPEC MEMBERS THAT IT WILL NOT CUT OUTPUT.”

So we rally on “may cut” and ignore “will not cut”…

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If traders aren’t looking at global rising bond yields, and increasingly steeper curves, they should be because as RBC’s head of criss-asset desk strategy Charlie McElligott says in his latest market note, “That is VaR crushing DV01 destruction at its finest.“

Here are the highlights:

GLOBAL RATES AGAIN DANGEROUSLY HIGHER, BUT STOCKS AND VIX RELAXED

The absolute focus overnight / today is “core” macro though, as global developed market rates are being re-priced “risk manager style,” particularly with EGBs under MAJOR pressure as the buyside is caught wrong-footed (as I type, Slovak 10Y +7.2bps, Denmark 30Y +9.4bps, Netherlands 30Y +9.9bps, Finland 30Y +10.1bps, German 30Y +9.9bps, Austria 30Y +9.3bps…and even front-end seeing outsized moves with the Belgian 2Y +2.2bps).  That is VaR crushing DV01 destruction at its finest. 

Without question, a constant theme we’ve hit on in the “Big Picture” over the past few months is the risk of a market hyper long duration on lazy QE-induced “yield compression” trading, into an environment where CBers in coordinated fashion are telling us they want to steepen the curve / get long-end yields “higher” (overnight Kuroda stated exactly “this” desire to see long yields rise / steeper curves—and even “alluding to” future tapering by saying that the BoJ may not need to buy Y80T of bonds indefinitely—H/T Todd Cross).  Why are so many caught “wrong” by this?  Perhaps it’s a “fool me once / fool me twice” dynamic of market complacency with CB rhetoric.  But I have also referenced (since early Summer) the danger of the “false signal” of “mechanically” lower rates, as many have misinterpreted them as a direct read on “low growth” / “low inflation” in perpetuity…when in fact, much of it was simply due to said “duration grabbing yield compression” from the “real money” universe (and piled-on by momentum-chomping systematic CTA / trend-following community) in light of CB NIRP policies and unprecedented asset purchases. 

Now we too are seeing nascent signs of an inflation expectation “readjustment” as well (BE’s / inflation swaps and zeros / ‘cyclical : defensive equities ratio’ all at or near year highs, and our govies desk has seen nothing but buyers of TIPS all week) in large part via the crude “base effect” (and if in the US, also seeing inflation in healthcare and rents, while wages tickle higher on top of that)…while global manufacturing PMIs look strong (overnight two more positive manufacturing data points with Swedish and Italian Manu Confidence beats) and we get another GDP beat (UK Q3 GDP 2.3% vs 2.1% est) as well—i.e. the data is nowhere close to ‘as bad’ as the majority thought it was going to be. 

And “oh yeah,” a Dec hike is now being priced at a ~75% probability.  Where I come from, we call that a “perfect storm” for a world choking on “risk free yield.”  And part of the issue we have now which is worth reiterating is that the “overseas ALM community” has moved that 1.80 “buy zone” level higher, where it sounds like the next level is likely close to 1.86%.

I have spoken about the amount of length in the global steepener trade–which inherently makes me nervous as it looks to be a “no brainer” consensus trade–but that continues to look like the “right” place to be, as the long-end is back under significant pressure in major sovereign bond markets.  Again, this is bc central bankers from the BoJ (Kuroda himself now, but “kicked off” by the mad-scientist Sakurai first who commenced the September “taper tantrum”) to the ECB (“sources” report two weeks back) to the Fed (Rosengren two Friday’s ago) getting in on the CLEARLY COORDINATED MESSAGING.

Further to the “steepening” point…this is what I said last week after Rosengren’s statement that “…we have the flexibility to steepen the yield curve and there are a number of ways we could potentially do that.”

“But back to the “steepening” convo at hand: this is further proof that this “CB group re-think” IS occurring—an acknowledgement that you can’t keep buying bonds at this pace forever without creating utter dysfunction…unless of course the mandate is moved to debt monetization / helicopter money.  As a reminder, the BoJ actually put their ¥ where their mouths were, actually purchasing fewer 10Ys in their last end-September operation than previous ones, as yields were seemingly too far out of scope / too negative at the time—IT IS HAPPENING, SLOWLY BUT SURELY.  This CB re-think then means that the market regime needs to also shift, because a flattening curve in the recent past was essentially a statement from the market in a belief that QE was working.  Now, this (admittedly longer-term) CB shift means an eventual “tapering” from those active QE participants (BoJ, ECB, BoE) is prerequisite…even if they try to execute the steepening in a sterilized fashion.”

Mind you, we also have this VERY CONTRA- inflation story to juxtapose this against, with regards to the recent and massive USD strength as a major headwind (and clearly the psych / real effect of the Yuan fix “devaluation,” although the SDR basket holds sideways—meaning this is more about the Dollar).  All in all, it’s quite reminiscent of last year with the Dollar / RMB / Fed interplay as we pushed into year-end, where it seems the Fed has put their blinders on with regards to the dangerous “policy divergence” narrative, and the implications for inflation, commods and EM.  The market is going to have to “true-up” on these conflicting messages soon. 

EU 2s30s CURVE ON THE “GIDDYUP:”

GOLD AND UST LONG BOND MTD:

U.S. CONSUMER CONFIDENCE EXPECTATIONS MINUS PRESENT, PLOTTED AGAIN RECESSIONS: Looking to be back in the “strike zone.”

via http://ift.tt/2eet6HK Tyler Durden

Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

 

At a monetary conference in Vienna back in 2014, the distinguished Frenchman, friend, and occasional collaborator Jacques de Larosière proclaimed that the current world monetary order should be termed an “anti-system.” He has a point – an important point. Among other things, such an anti-system invites an enormous amount of instability, as well as uninformed loose talk that influences public opinion and policy.

The Chinese yuan has been at the center of much of the recent misinformation and disinformation about currencies. For example, during the first presidential debate between Donald Trump and Hillary Clinton, Trump fingered China as the world’s best practitioner of currency devaluations – devaluations that Trump claims power China’s exports. Clinton didn’t object to Trump’s thesis. Indeed, she boarded the same bandwagon. And with the Chinese yuan making new lows, the ever-misinformed mercantilists who populate Washington, D.C. are clinging to the bandwagon, too.

What are the facts? Well, they contradict the Beltway’s conventional wisdom. Chinese exports have steadily risen since 1995, but they have not been powered by a depreciating yuan. In fact, the yuan has slightly appreciated in both nominal and real terms. The accompanying charts tell that story. Note that the real and nominal charts tell the same story because the inflation rates in the U.S. and China have been similar over the past two decades.

via http://ift.tt/2dLCB4Y Steve H. Hanke

Presented with no comment but a deeply furrowed brow…

Less Business Spending… more jobs?

 

Dismal Services economy… more jobs?

 

More jobs… more misery?

 

More fictional 'claims'.

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For the 21st straight month, Core Durable Goods Orders contracted YoY – the longest in US history outside of a recession. Business spending proxy segment of the report, New Orders non-defense, ex-aircraft plunged 1.2% MoM (much worse than the -0.1% expectation) and down 3.6% YoY.

 

This remains the longest non-recessionary contraction in durable goods orders in US history…

 

And the proxy for Business Spending plunged 1.2% MoM (and 3.6% YoY)…

 

This is the worst MoM drop for business spending in September since 2008.

But apart from that, the economy is doing great.

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