For those who watched last night's pre-presidential theater, our condolences. You were not alone, however. Art Cashin was there too and here is his post-mortem.
Time‘s Mark Halperin has made himself useful for once by obtaining, and publishing, a copy of the 21-page memorandum of understanding that the Obama and Romney campaigns negotiated with the Commission on Presidential Debates establishing the rules governing this month’s presidential and vice presidential face-offs. The upshot: Both campaigns are terrified at anything even remotely spontaneous happening.
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Not news: The CEO of a prominent and successful business voicing his concerns over the possibility of President Obama winning re-election.
News: The CEO of a prominent and successful business voicing his concerns over the possibility of President Obama winning re-election and then vowing to write-in the name of libertarian Congressman Ron Paul rather than vote for the GOP’s nominated candidate.
And that’s exactly what Overstock.com CEO Patrick Byrne promised last week during an interview with Fox News’ Greta Van Susteren.
… The Overstock.com CEO argued that both the Republican and Democrat Party have a fundamental misunderstanding of the major issues facing the country.
“Who you voting for?” Greta Van Susteren asked. “I’m curious.”
“I’ll write-in Ron Paul,” Byrne responded, “He’s the only one who understands the constitution and the benefits of a limited government.”
Sick of the seemingly endless presidential theater? So are we. Alas, there are 20 more days to go, so to kill a few minutes here are some cartoon anecdotes of previous presidential 'precedents' courtesy of XKCD.
We are currently experiencing a pre-election surge in all economic metrics; and then comes the hangover as can be confirmed by looking at hiring plans. Morgan Stanley's Business Conditions Index (a multi-factor real-time bottom-up economy tracker) has tumbled this month, giving back most of the very recent gains but it is the 'outlook for hiring' that is the most worrisome. Despite the stronger than expected employment report for October, both hiring indices fell to multi-year lows. The hiring index dropped 10 points to 44%, its lowest since December 2009, and the hiring plans index sunk 13 points to 44%, lowest since August 2009. Due to its leading indicator nature, this means that imminent payrolls may not stop rising; but in a few short months will post the first sequential decline since 2010. What this means for the unemployment rate is self-explanatory - but by then the election will be decided.
We can summarize the breeding ground of new-type depression: very demanding work that is beyond the capacity of people with poor social and communication skills and those who fear being left behind or failing. Fearing failure, they wilt under criticism that seems unfair and irresponsible given that they're doing their best. Facing an apparently no-win situation at work, they quit or take an extended leave of absence. This doesn't solve the depression or its causes, unfortunately. What seems to help is counseling that raises the emotional maturity of the person with NTD so they can better handle criticism, and counseling the senior supervisors to become better communicators with younger workers. Placing workers with low communication skills in jobs where they can work independently and productively also helps. The demands on enterprises and employees alike are rising as the "New Economy" of pervasive insecurity and constant adaptation become the norm. The take-away from Japan's new-style depression is that we need to understand not all workers are cut out for the high-social-skill "New Economy," though in the right positions they are admirably productive. That will take a new level of management skills in Corporate Japan, America and Europe as definancialization and deleveraging unravel the global economy.
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Once "Jollying The Markets" With "Faith, Hope And Charity" Fails, What Comes Next: A Primer On Europe's Next StepsBack in January, Zero Hedge proposed a pair trade, which to date has returned well over 100% on a blended basis, namely the shorting of local law peripheral European bonds, while going long English law (or strong covenant) bonds (a relationship best arbed in Greece, when various foreign-law issues were tendered for at par to avoid a bankruptcy, even as the local law bond population saw a massive cram down a few months later as part of the second Greek "bailout"). In big part, this proposal stemmed from the work of Cleary Gottlieb's Lee Buccheit, who has been the quiet brain behind the real time restructuring of Europe's insolvent states. In fact, one can say that what is happening in Europe was predicted to a large extent in his "How to Restructure Greek Debt" and "Greek Debt; The Endgame Scenarios." Which is why we read his latest white paper: "The Eurozone Debt Crisis - The Options Now", because it presents, in clear, practical terms, just what the flowchart for Europe looks like, unimpeded by the ceaseless chatter and noise of clueless politicians and career bureaucrats who have never heard the term pro forma or fresh start. In brief, Buccheit, unlike all European politicians, is hardly optimistic.
As all eyes and ears (and trigger fingers) are glued to the flashing red headlines from Europe's conditional unconditional OMT/credit-line/backstop/ESM malarkey and Spain's insistence that it doesn't need help yet just wonders what the rules are, Merkel stated - for absolute clarity once again - her views yesterday. As much as no-one wants to hear what the money-lady has to say - preferring instead to live in a world where promises work, FinMin Schaeuble clarified the need for a 'currency commissioner' with sweeping powers to strike down national budgets. This bombshell, as The Telegraph calls it, is really nothing of the sort; as Merkel has already made it clear that there's no money without sacrificing sovereignty. The directness of this statement though does raise questions over just what the ECB is for? Critically, dismissing Van Rompuy's spin that this is a step towards debt-pooling and euro-bills, Schaeuble made it clear that fiscal union meant "more power to police the affairs of debtor states." While the possibility remains of a precautionary line of credit, the Germans stated: "one thing is clear: whatever is requested, it won't be without conditions," and as Citi's Steve Englander noted "It's all down to haggling over the price now."
As overseas deposits continue to flood from the periphery (e.g. Italy -15.4% YoY in Aug), yet another European Summit is about to begin delivering headline after headline of baffle-'em-with-bullshit comments. As the market switches from rallying on conditional OMT-backed bailouts (that are not needed according to Rajoy and De Guindos), now it is rallying on a precautionary line of credit (with no apparent conditionality) that Katainen also adds is not needed because Spain doesn't need a bailout. It seems that a 'half pregnant' bailout for Spain is all that it takes as 10Y Spanish spreads dropped below 400bps for the first time in six months and while IBEX is lagging the sovereign's performance for now, it is also having a great week (up over 5%). Thanks to Moody's apparently gutless contingent investment-grade-but-on-the-verge-of-needing-a-sovereign-bailout decision, more rotation from foreign real money to domestic real money and fast money is slapping Spanish credit tighter in a hurry (5Y CDS 278bps and 10Y yield under 5.5%). Now if someone would just explain how any of this has solved the underlying insolvency issues, we'll be more than happy to play along.
One of the 'chief architects of Goldman's Big Short' on the subprime debacle is reaping the rewards of the Fed's actions once again at his new hedge fund. After backing up the subprime truck in 2007 for Goldman, Josh Birnbaum is back (at Tilden Park Capital) and according to Bloomberg, is up 30% this year as we presume he is front-running the Fed's repression. The 40-year old founded the firm as a number of funds enter the non-agency mortgage-bond market where there are "billions of bonds trading a week and they are hotly debated" which creates opportunity from different valuations - as opposed to the agency-side where the heavy hand of Bernanke moves everything systemically. Ironically while Birnbaum bet it all on Subprime weakness at Goldman, he appears to be all-in on recovery this time as he notes "some of these recovery plays are compelling" and is "significantly more constructive" now than a year ago.
The pre-election barrage of "six-sigma" economic beats continues, with today the trophy going to Housing Starts, which soared by a whopping 15% from a revised 758K to 872K. The highest forecast called for a 800,000 print with consensus expecting an increase to 770,000K. Did we say 6 sigma? We meant a 9 sigma beat to consensus. The numbers being thrown about are so ridiculous they are almost credible in their political talking point ridiculousness. Expect this outlier printing to continue at least until the election. In the meantime, prepare for a barrage that housing start soared to the highest since July 2008. Looking inside the numbers, the print for single family rose to 603K from a revised 543K, while multi-family houses increased to 260K from 208K. The geographical breakdown is as follows Northeast down 4K to 75K, Midwest modestly higher to 143K from 134K, West a little more higher from 169K to 203K, and the biggest surge was in the South from 376K to 451K. At this point the best one can hope for is for a return to some normal data reporting after the election, because it is now obvious that every data series will be skewed and 'seasonally adjusted' substantially higher. Curious why BofA charge-offs are already soaring thanks to the Housing Bubble 2.0? That's why.
Bank Of America Gimmicks Continue - Chargeoffs Soar To Highest In A Year, As Loan Loss Release Surges
When one combs through the usual hodge podge of purposefully distracting headline bullets in Bank of America's quarterly release one as usual ends up with a sorry picture. Here are the key numbers: Noninterest income for the firm, traditionally about half of total revenues in addition to Net Interest Income, has continued to decline, and slid fo $10.5 billion, down from $12.4 billion in Q2 and down from $18.0 billion in Q3 2011. The other side: Total Interest Income (before expenses) also has continued to decline, and dropped to $13.976 billion from $13.992 billion a quarter ago, and down from $15.853 billion a year earlier. These numbers are hard to fudge. The number that is very easy to fudge is the Net Income (and per share) line, which was reported at $340 MM or $0.00 in diluted earnings per share after dividends. What helped substantially here is the following: while the firm booked a provision for credit losses of just $1.774 bilion, in line with Q2 and half of the $3.4 billion in Q3, 2011, what more than offset this was the surge in reserve reduction which soared to the highest in years at $2.348 billion, up from $1.853 billion in Q2 and way up from the $1.679 billion in Q3 2011. What is even more paradoxical is that despite what Moynihan is saying about an improvement in the housing market, the bank's total chargeoffs rose to the highest in a year, at $4.122 billion, up from $3.626 billion in Q2, and the highest since Q4 2011. The result is that the Net charge off ratio also spiked to the highest in a year, at 1.86%.
- Obama takes offensive against Romney in debate rematch (Reuters)
- Obama Says Romney Words Aren’t ‘True’ in Second Debate (Bloomberg)
- Obama takes Romney head-on in debate (FT)
- And another joins the club: Thailand Unexpectedly Cuts Rate as Global Outlook Worsens (Bloomberg)
- PBOC Injects Less Cash (WSJ)
- Japan to Hold Special Cabinet Meeting After Economy Downgraded (Bloomberg)
- Greek Coalition Duo Reject Labour Moves Proposed by Troika (WSJ)
- Opposition wanes to Spanish aid request (FT)
- RBS to Exit U.K. Asset Protection Plan After $4 Billion Fees (Bloomberg)
- Spain Retains Investment Grade Credit Rating From Moody’s (Bloomberg)
- US diplomat asks Japan, ROK to resolve islands spat (China Daily)
- Stagnation not due to austerity, says OBR (FT)
To summarize: European stocks are little changed although Spanish shares rise. Spain 10-yr bond yields fall to the lowest level in more than 6 months. S&P futures are now higher on the trading session, driven by correlation engines as the euro is up vs the dollar, despite major disappointments by IBM and Intel. In other news Germany formally shut down the debt redemption fund proposal, ending one more rescue avenue for when the recent baseless euphoria ends, even as Spanish La Vanguardia reports that Germany is pressuring Italy to request European aid alongside Spain so that the government of Prime Minister Mario Monti doesn’t reap the benefit of lower borrowing costs without being tied to tougher economic reforms. Needless to say, Italy is said to resist the proposal: after all in Europe one just wants the upside from being bailed out, as opposed to actually being bailed out...
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Debate (2nd Presidential)
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