Tag: finance

End Of The Empire

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If the top 1/100th of 1% crowding airports with their private jets isn't afraid of impoverished, disenchanted debt-serfs with pitchforks, they should be.
 

By End of the Empire I refer not to the collapse of American Imperial power but to the excesses and anxieties that characterize the decay of Empire. I have covered the dynamics of Imperial decay before: How Empires Fall (April 17, 2013): 
The imperial tree falls not because the challenges are too great but because the core of the tree has been weakened by the gradual loss of surplus, purpose, institutional effectiveness, intellectual vigor and productive investment.
 
What I want to address today is the psychological characteristics of Imperial decay: a jaded populace that seeks distraction from their anxieties in excess. We know what characterizes empires on the make: a populace that is vigorous, confident, brimming with abilities and more than willing to engage in spirited intellectual debate on key issues.
 
What characterizes the American populace today? Jaded, unwilling to sacrifice comfort and convenience for long-term gain, incapable of honest debate, brimming with resentful excuses, insecure, anxious, fearful, depressed, distracted, self-absorbed. These last seven are of course the key traits of permanent adolescence, the state of arrested development encouraged by consumerism.
 
But they also characterize an Empire that has lost its edge, its ability to sacrifice for a common good, its confidence in its leadership and institutions, and its focus on building value rather than consuming.
 
Longtime correspondent Kevin K. recently submitted a comparison of the cost for a family of four to attend an NFL football game. San Francisco led the pack at $641 per game for average seats and a few drinks/hot dogs. (Scratch the $10 program and the $22 hat and that drops it all the way down to $609.)
49ers stadium priciest in NFL for a family of four: $641
 
The cheapest outing in the league came in at $345. I confess I'm frugal (hey I'm a writer, frugality is part of the package), but $345 doesn't strike me as particularly affordable. That's two months' groceries in our abode, and $641 is the cost of a 3,000-mile car-camping trip.
 
It's remarkably easy to drop $600 on a dinner for four at a high-end eatery (with wine, of course). It's almost laughable to look at archived menus of top-end restaurants in the 1960s; even in major bastions of old wealth like San Francisco, the fare at the best restaurants in town in the 1960s would barely pass muster at a decent cafe nowadays in terms of sophistication and complexity.
 
There is no way to parody current high-end restaurant fare: it is its own parody.Whatever bizarre combination of ingredients you might propose in a parody is on the menu at some fancy bistro–with a straight face and hefty price tag.
 
You know we're in trouble when parody has been rendered impossible.
 
Want to attend a live rock concert with a big name band? $600 might buy you two decent seats–or not. Even lesser names cost in excess of $100.
 
The median household income in the U.S. is around $51,000. A house in a "nice" neighborhood in many Left Coast cities costs $1,000,000. These are not mansions or the best house in town: these are average homes.
 
Although I can't find statistics to verify this, I am fairly confident that this ratio of median income to average houses in "nice" Left Coast neighborhoods (20 to 1) far exceeds the extremes of 1929.
 
$105,000 income puts a household in the top 20%, and $150,000 puts a household in the top 10%. How many football games (or meals, weekends away, concerts, etc.) at $600 a pop can a household earning $105,000 afford? How many should a household indulge in, given the pressing need to save for investment and emergencies?
 
We all know households that have no business squandering these sums on entertainment do so for two reasons: entitlement and aspirational spending. Imperial populations feel entitled: to bread and circuses (food stamps and 24-hour sports channels), to high-paying, secure jobs where sluggards can't be fired, to trust funds (so we don't have to lower ourselves to do work that is not fulfilling), to pills that cure us of ailments we nurtured with our unhealthy lifestyles, etc. etc. etc.
 
Everyone aspires to look like they belong in the elite. The top 10% want to look like they're 1%ers, the top 20% want to look like top 5%ers, the top 40% want to look like top 10%ers, and so on.
 
The absurd excesses of consumerism are driven by one key dynamic: the top slice has never been wealthier or had so much free cash to blow on excess consumption.
 
The top 1/10th of 1% has never been wealthier, the top 1% has never been wealthier, the top 5% have never been wealthier, and the top 10% have never been wealthier. People wonder why they're "poor" despite earning $250,000 a year, and yet they seem unaware of where their earnings go because they're entitled to all the goodies: by golly, we worked hard and we deserve it.
 
Even if we didn't work hard, we still deserve it, because we're special.
 
One would imagine that the populace of an Empire at its zenith would feel euphoric, confident, secure, fearless: chomping at the bit to go out and do great things not just for themselves but for the Empire.
 
Instead, we see a populace on anti-depressants, insecure, anxious, burdened by ill health, jaded by 24 hours of everything, every day, distrustful of its corrupt leadership and self-serving institutions, and beneath the rah-rah phony cheer, fearful that the whole rotten contraption might give way before they secure their share of the Imperial swag.
 

If the top 1/100th of 1% crowding airports with their private jets isn't afraid of impoverished, disenchanted debt-serfs with pitchforks, they should be.

 




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Turkey In Turmoil After Tanks Roll Out To Stop Deadly Protests; Stocks Tumble

While geopolitics has largely dropped of the front news page, replaced by updates on the global Ebola epidemic (which until recently was considered nothing but fearmongering by those who prefer to avoid reality ews until it is far too late), things in the Middle East are getting worse, and while the US attack against ISIS has achieved absolutely nothing (in fact, the revelation of US strategies may have facilitated the incursion of ISIS into the town of Kobani, a mostly Kurdish city in north Syria), the latest geopolitical hotspot over the past few days has become NATO member Turkey (we provided a big picture summary in “Turkey, The Kurds And Iraq – The Prize & Peril Of Kirkuk“). It is here that violent clashes broke out across the southeast of the nation with several people reported dead and curfews imposed, as the region’s Kurdish people protested the advance of Islamic State just across the border with Syria.

As Bloomberg reports, demonstrators clashed with police and in some areas with members of local Islamist groups, according to Turkish media. Haberturk website said that five people were killed in Diyarbakir, Turkey’s largest Kurdish city. A curfew was imposed there at 10 p.m. local time as well as in Mardin, Siirt, Batman and Van, according to Hurriyet newspaper.

The reason for the anger:  Syrian Kurdish fighters are battling to prevent Islamic State militants from overrunning Kobani, a mostly Kurdish city in north Syria a couple of miles south of the Turkish border. Kurds have blamed the Turkish government for not doing enough to help the Kurds of Kobani.

As a result, Twitter is overrun with photos such as the following:

But while people are expendable, even in the most banana republic, surging assets aren’t, and while the regional violent protests would likely be ignored, it is the impact they are having on local stocks that has gotten the world’s attention. To wit: the Turkish lira weakened for a second day and Turkish stocks dropped to a five-month low as nervous traders took profits following the breakout of deadly clashes:

From Bloomberg: 

The lira depreciated 0.8 percent against the dollar to 2.2929 at 1:14 p.m. in Istanbul, sinking the most among 24 emerging market currencies tacked by Bloomberg. The Borsa Istanbul 100 Index (XU100) retreated 2 percent to the lowest since April 30 at the midday break. Trading in Turkish equity and debt instrument markets restarted today after closing at midday on Oct. 3.

 

Kurds in the southeast are protesting the government’s limited response to Islamic State militants threatening the town of Kobani just across the Syrian border. Haberturk website said at least 15 people were killed in the violence. A curfew was imposed there at 10 p.m. local time yesterday, as well as in Mardin, Siirt, Batman and Van, according to Hurriyet newspaper, which put the death toll at 14.

 

“The protests are clearly taking a toll on the lira,” Ipek Ozkardeskaya, a currency strategist at Swissquote Bank SA in Geneva, said in e-mailed comments. “There is an increase in geo-political risk perception. A close above 2.28 liras may increase the depreciation momentum, and Fed minutes are likely to support this trend.”

 

The yield on the nation’s 10-year debt jumped for the first time this month, rising 10 basis points to 9.74 percent. The Borsa’s 14-day relative strength index fell to 26, the lowest since June 2013. A level below 30 indicates to some technical analysts that a security or index is oversold and is poised to rise.

 

“If Turkey intervenes militarily, the negative impact on financial markets could continue,” Ozgur Altug, chief economist at BGC Partners in Istanbul, said by e-mail.

Because that’s really what matters: financial markets. Who cares about the collateral damage such as countless human lives lost to serve someone’s bigger agenda.


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America’s First Ebola Patient, Thomas Eric Duncan, Has Died

The first US Ebola patient, Thomas Eric Duncan, who was treated in Texas, has just died:

  • TEXAS HEALTH REPORTS DEATH OF EBOLA PATIENT THOMAS ERIC DUNCAN

And while we await the inevitable CDC press conference to follow, the stock of CMRX, whose medicine was being used to treat him, is plunging.

 

 

As Bloomberg reports,

Thomas Eric Duncan, the first person diagnosed with Ebola in the U.S., died from the virus while in isolation at a Dallas hospital.

 

Duncan was diagnosed with the disease on Sept. 30 after contracting it in his native Liberia, where Ebola has infected about 7,500 people, killing half. He had come to the country to marry his girlfriend, Louise Troh, who is now being quarantined and has not yet shown symptoms of the disease.

 

“It is with profound sadness and heartfelt disappointment that we must inform you of the death of Thomas Eric Duncan this morning at 7:51 am,” Texas Health Presbyterian Hospital said in a statement today.

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Markets In Turmoil Update

BTFD’ers are absent as markets everywhere are in turmoil. Commodities are sliding with WTI plunging (almost a bear market from June highs) and copper crumbling. The USD is slightly lower (3rd day in a row). Treasury yields are slightly lower. But it is stocks that are turmoiling most as the Dow nears unchanged year-to-date. After the dramatic ramp off the lows last week, stocks have entirely roundtripped and then some to fresh cycle lows, led by Trannies and Small caps. VIX is back over 18.

Stocks have roundtripped and worse from last Thursday’s lows…

 

Commodities are sliding this morning with WTI plunging…

 

JCP and SHLD are crashing…




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Homeland Security Orders Agents To Monitor All Travelers To US For “General Signs Of Illness”

Following CDC Director Frieden’s warning yesterday, the AP reports, US Homeland Security has unveiled additional more stringent monitoring of all travelers to the US for the Ebola virus.

 

As The AP reports,

The Homeland Security Department has ordered agents at airports and other ports of entry to observe everyone coming into the United States for potential signs of Ebola infection.

 

Homeland Security Deputy Secretary Alejandro Mayorkas says Customs and Border Protection agents are also handing out factsheets to travelers with details of what symptoms to look for and directions to call a doctor if they become sick within 21 days.

 

Mayorkas did not elaborate on how they would observe people or say when the new measures would begin.

 

He said agents would observe all travelers for “general signs of illness” at the points of entry. He spoke at an airport security conference in Northern Virginia on Wednesday.

 

The Obama administration has wrestled in recent weeks with what it can do effectively to detect arriving passengers who may be carrying the disease since many of them may not be symptomatic when they arrive.

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Not a total surprise




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Sears Halted, Plunges After Report Vendors Halts Shipments

Is this the beginning of the end for Eddie Lampert’s exercise in financial engineering that is Sears Holdings Corp? Bloomberg reports that three of the biggest insurance firms for Sears’ suppliers are seeking to reduce coverage… which has led to:

  • *SEARS VENDOR SAID TO HALT SHIPMENTS AS INSURERS REDUCE COVERAGE
  • *SEARS VENDOR WITHHOLDING SHIPMENTS IS MEDIUM-SIZED SUPPLIER

The stock has been halted twice on volatility limits and is down 10% for now. SRAC 5Y CDS are offered at ~39% upfront, implying around a 87% probability of default.

 

As Bloomberg reports,

Three of the biggest insurance firms for Sears Holdings Corp.’s suppliers are seeking to reduce coverage, prompting at least one medium-sized vendor to halt shipments to the department-store chain, people with knowledge of the matter said.

 

Euler Hermes Group, one of the top providers of credit insurance to vendors, has been sending out cancellation notice , according to the people, who asked not to be identified because the information isn’t public. Coface SA has indicated that it intends to do the same, two of the people said. Atradius Credit Insurance, another of the insurers, said it’s scaling back coverage, though the firm hasn’t yet pulled policies.

 

The situation has spurred one supplier to withhold products from Sears after a recommendation from its credit department, according to an e-mail obtained by Bloomberg News. The vendor, a closely held company, asked not to be named.

 

Suppliers rely on credit insurance to protect themselves against not getting paid for products they ship to retailers. For Sears, which has posted 30 straight quarters of declining sales, the shrinking support from insurers may make it harder to stock products and execute a comeback.

 

David Huey, the president and regional director of U.S., Canada and Mexico for Atradius in Baltimore, said the firm is decreasing its Sears supplier coverage “as the problems have become more obvious.”

 

“We’ve reduced as we’ve seen the risk increase,” he said in an interview. Though no policies have been canceled, “it could happen,” he said. “We’re reviewing it regularly.”

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“We Can’t Exclude The Possibility That Ebola Can Spread Through The Air,” Expert Warns

"At this point there is zero risk of transmission on flights," said CDC Director Dr. Thomas Frieden, supporting other public health officials who have voiced similar assurances, saying Ebola is spread only through physical contact with a symptomatic individual or their bodily fluids. However, as The LA Times reports, some scientists who have long studied Ebola say such assurances are premature – and they are concerned about what is not known about the strain now on the loose. Dr. C.J. Peters, who battled a 1989 outbreak of the virus, and who later led the CDC's most far-reaching study of Ebola's transmissibility in humans, said he would not rule out the possibility that it spreads through the air in tight quarters…"We just don't have the data to exclude it."

 

As The LA Times reports, officials continue to stress how hard it is to get infected by Ebola…

"Ebola is not transmitted by the air. It is not an airborne infection," said Dr. Edward Goodman of Texas Health Presbyterian Hospital in Dallas, where the Liberian patient remains in critical condition.

 

…Public health officials have voiced similar assurances, saying Ebola is spread only through physical contact with a symptomatic individual or their bodily fluids.

Yet some scientists who have long studied Ebola say such assurances are premature – and they are concerned about what is not known about the strain now on the loose. It is an Ebola outbreak like none seen before, jumping from the bush to urban areas, giving the virus more opportunities to evolve as it passes through multiple human hosts.

Dr. C.J. Peters, who battled a 1989 outbreak of the virus among research monkeys housed in Virginia and who later led the CDC's most far-reaching study of Ebola's transmissibility in humans, said he would not rule out the possibility that it spreads through the air in tight quarters.

 

"We just don't have the data to exclude it," said Peters, who continues to research viral diseases at the University of Texas in Galveston.

 

Dr. Philip K. Russell, a virologist who oversaw Ebola research while heading the U.S. Army's Medical Research and Development Command, and who later led the government's massive stockpiling of smallpox vaccine after the Sept. 11 terrorist attacks, also said much was still to be learned. "Being dogmatic is, I think, ill-advised, because there are too many unknowns here."

 

If Ebola were to mutate on its path from human to human, said Russell and other scientists, its virulence might wane — or it might spread in ways not observed during past outbreaks, which were stopped after transmission among just two to three people, before the virus had a greater chance to evolve. The present outbreak in West Africa has killed approximately 3,400 people, and there is no medical cure for Ebola.

 

"I see the reasons to dampen down public fears," Russell said. "But scientifically, we're in the middle of the first experiment of multiple, serial passages of Ebola virus in man…. God knows what this virus is going to look like. I don't."

Additionally, Charles L. Bailey supervised the government's response to an outbreak of Ebola among several dozen rhesus monkeys housed for research in Reston, Va., a suburb of Washington.

What Bailey learned from the episode informs his suspicion that the current strain of Ebola afflicting humans might be spread through tiny liquid droplets propelled into the air by coughing or sneezing.

 

"We know for a fact that the virus occurs in sputum and no one has ever done a study [disproving that] coughing or sneezing is a viable means of transmitting," he said. Unqualified assurances that Ebola is not spread through the air, Bailey said, are "misleading."

 

Peters, whose CDC team studied cases from 27 households that emerged during a 1995 Ebola outbreak in Democratic Republic of Congo, said that while most could be attributed to contact with infected late-stage patients or their bodily fluids, "some" infections may have occurred via "aerosol transmission."

 

…

 

Though he acknowledged that the means of disease transmission among the animals would not guarantee the same result among humans, Bailey said the outcome may hold lessons for the present Ebola epidemic.

 

"Those monkeys were dying in a pattern that was certainly suggestive of coughing and sneezing — some sort of aerosol movement," Bailey said. "They were dying and spreading it so quickly from cage to cage. We finally came to the conclusion that the best action was to euthanize them all."

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Maybe that explains the 160,000 HazMat suits the US government just ordered…




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Gartman Flip-Flops Again, Is Now Pleasantly “Market-Neutral”

Here’s the latest flip-flop from the G-man, who completely forgot his most recent virtual (derivative) portfolio was actually bullish into the biggest market plunge in months:

If the Russell were to hold today and turn higher, then we might very seriously consider covering a portion of our derivatives; otherwise, we shall sit tight, remaining market neutral and fearing that indeed the bear market has begun and that rallies henceforth are to be sold rather than weakness bought.

And yet two days ago:

The well-defined upward sloping trend channel continues to remain fully intact and until that trend line is broken we have to once again err upon the side of being bullish of shares generally… Support levels have held and trends from the lower left to the upper right obtain. One may wish to join the bearish camp, but one would be wrong.

Because where else does $29.95 or whatever buy so much comedy?




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Fed’s Lacker Slams Fed For “Inappropriate” Bond-Buying, “Distorting Markets & Undermining Independence”

Authored by Richmond Fed head Jeffrey Lacker, op-ed via The Wall Street Journal,

Modern central banks enjoy extraordinary independence, typically operating free from political interference. That has proved critical for price stability in recent decades, but it puts central banks in a perpetually precarious position. Central-bank legitimacy will wane without boundaries on tools used for credit-market intervention.

Since 2009 the Fed has acquired $1.7 trillion in mortgage-backed securities underwritten by Fannie Mae and Freddie Mac , the mortgage companies now under government conservatorship. Housing finance was at the heart of the financial crisis, and these purchases began in early 2009 out of concern for the stability of the housing-finance system. Mortgage markets have since stabilized, but the purchases have resumed, with more than $800 billion accumulated since September 2012.

We were skeptical of the need for the purchase of mortgage assets, even in 2009, believing that the Fed could achieve its goals through the purchase of Treasury securities alone. Now, as the Fed looks to raise the federal-funds rate and other short-term interest rates to more normal levels, that normalization should include a plan to sell these assets at a predictable pace, so that we can minimize our distortion of credit markets. The Federal Open Market Committee’s recent statement of normalization principles did not include such a plan. For this reason, the first author, an FOMC participant, was unwilling to support the principles.

The Fed’s MBS holdings go well beyond what is required to conduct monetary policy, even with interest rates near zero. The Federal Reserve has two main policy mandates: price stability and maximum employment. In the past, the pursuit of higher employment has sometimes led the Fed (and other central banks) to sacrifice monetary stability for the short-term employment gains that easier policy can provide. This sacrifice can bring unfortunate consequences such as the double-digit inflation seen in the 1960s and 1970s.

But during the Great Moderation—the period of relatively favorable economic conditions in the 1980s and 1990s—a consensus emerged that, over time, the central bank’s effect on employment and other real economic variables is limited. Instead, the central bank’s unique capability is to anchor the longer-term behavior of the price level. Governments came to see that entrusting monetary policy to an institution with substantial day-to-day independence could help overcome the inflationary bias that short-term electoral pressures can impart.

The independence of the central bank cannot be boundless, however. In a democracy, the central bank must be accountable for performance against its legislated macroeconomic goals. What is essential for operational independence is the central bank’s ability to manage the quantity of money it supplies—that is, the monetary liabilities on its balance sheet—because this is how modern central banks influence short-term interest rates.

A balance sheet has two sides, though, and it is the asset side that can be problematic. When the Fed buys Treasury securities, any interest-rate effects will flow evenly to all private borrowers, since all credit markets are ultimately linked to the risk-free yields on Treasurys. But when the central bank buys private assets, it can tilt the playing field toward some borrowers at the expense of others, affecting the allocation of credit.

If the Fed’s MBS holdings are of any direct consequence, they favor home-mortgage borrowers by putting downward pressure on mortgage rates. This increases the interest rates faced by other borrowers, compared with holding an equivalent amount of Treasurys. It is as if the Fed has provided off-budget funding for home-mortgage borrowers, financed by selling U.S. Treasury debt to the public.

Such interference in the allocation of credit is an inappropriate use of the central bank’s asset portfolio. It is not necessary for conducting monetary policy, and it involves distributional choices that should be made through the democratic process and carried out by fiscal authorities, not at the discretion of an independent central bank.

Some will say that central bank credit-market interventions reflect an age-old role as “lender of last resort.” But this expression historically referred to policies aimed at increasing the supply of paper notes when the demand for notes surged during episodes of financial turmoil. Today, fluctuations in the demand for central bank money can easily be accommodated through open-market purchases of Treasury securities. Expansive lending powers raise credit-allocation concerns similar to those raised by the purchase of private assets.

Moreover, Federal Reserve actions in the recent crisis bore little resemblance to the historical concept of a lender of last resort. While these actions were intended to preserve the stability of the financial system, they may have actually promoted greater fragility. Ambiguous boundaries around Fed credit-market intervention create expectations of intervention in future crises, dampening incentives for the private sector to monitor risk-taking and seek out stable funding arrangements.

Central bank operational independence is a unique institutional privilege. While such independence is vitally important to preserving monetary stability, it is likely to prove unstable—both politically and economically—without clear boundaries. Central bank actions that alter the allocation of credit blur those boundaries and endanger the stability the Fed was designed to ensure.

*  *  *

Why would he do this? CYA? What does Lacker know that investors don’t? His reasoning certainly suggests this is his ‘get out of jail free’ card for when the house of cards falls and he can say – see, I told you so… or maybe we are just cynical and Lacker is reflecting more generally on The Fed’s actions…

Oh to be a fly in the wall at the next FOMC meeting when he enters the room.




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