WTF...Kerry, John Kerry: Defense Secretary...

Just when the newsflow surrounding America's military-industrial complex couldn't get any more surreal, and on Veterans day on top of everything, here comes the WaPo with news that virtually assures all defense companies should open limit up tomorrow: "President Obama is considering asking Sen. John F. Kerry (D-Mass.) to serve as his next defense secretary, part of an extensive rearrangement of his national security team that will include a permanent replacement for former CIA director David H. Petraeus." That's right: John "Swiftboat" Kerry, the same John Kerry who accused Vietnam vets of committing war crimes; the same John Kerry of the whole military service controversy. More "Although Kerry is thought to covet the job of secretary of state, senior administration officials familiar with transition planning said that nomination will almost certainly go to Susan E. Rice, the U.S. ambassador to the United Nations." As to Petraeus, who may or may not testify over the Benghazi affair, but apparently is excused due to his familial infidelities, and whose sexual dalliances were (not) ironically captured best by The Onion, his replacement is also becoming clear: "John O. Brennan, Obama’s chief counterterrorism adviser, is a leading contender for the CIA job if he wants it, officials said. If Brennan goes ahead with his plan to leave government, Michael J. Morell, the agency’s acting director, is the prohibitive favorite to take over permanently. Officials cautioned that the White House discussions are still in the early phases and that no decisions have been made."

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Post-Election Performance: Dip-Buyer's Dream Or Valuation Slump

  With the S&P 500 down a staggering 6.5% from its post-QEtc highs, the world and their wealth adviser is beginning to get that Deja Deja Deja Vu feeling all over again. The commission-takers are being trotted out left, right, and center to spew forth every market myth from "money-on-the-sidelines" to "markets-hate-uncertainty"; from "valuation is cheap" and "whatcha' gonna do - buy bonds at 1.5% yield?"; and from "healthy retracement" to "long-term horizon". In today's episode of epic realizations of the truth, we thought we would look at year-end multiple expansion (contraction) seasonals - since we suspect earnings expectations (which are still running dramatically high; even though recently trending lower) - remain exorbitantly hopeful of a fiscal cliff resolution bringing joy and happiness to the world. Fact: post-election-year multiples have on average contracted around 1x versus a 0.6x expansion in non-election years.

The Devil You Know

Many Americans voted for “the lesser of two evils” and were disappointed in the result.  This must have been an emotional double whammy in the sense that not only did the guy you disliked so much that you were willing to vote for a candidate you didn’t like win, but you didn’t vote your conscience. What allowed Mike Krieger to do this was the complete and total recognition that under both major candidates America loses. His major issues are:

1. The Federal Reserve scam and Wall Street theft.
2. Civil liberties and the destruction of the Constitution.
3. Our aggressive foreign policy and imperial wars abroad that help only the oligarchs and impoverish the masses.

The country has cancer, not a common cold, and our response therefore must be much more serious than either of these corporate candidates are willing to commit to. Unfortunately, it will get ten times worse in the coming years, and we strongly believe that 2013-2016 will be a historic period in the political transformation of the United States.  The show is over.  It’s time to buckle up.

The Five Stages Of A Sovereign's Life-Cycle

Bridgewater's Ray Dalio believes four factors drive relative economic growth: competitiveness, indebtedness, culture, and luck. The returns from his machine-like investment process clearly indicate he is on to something as he notes that the most powerful influences of this relative income (and power) are 1) the psychology that drives people’s desires to work, borrow and consume and 2) war (which we measure in the “luck” gauge). Throughout history, Dalio advises these two influences have changed countries’ competitiveness and indebtedness which have caused changes in their relative wealth and power. He goes on to add that since different experiences lead to different psychological biases that lead to different experiences, etc., certain common cause-effect linkages drive the typical cycle of a nation's growth, power and influence - and that countries typically evolve through five stages of that cycle.

The Gini Is Out Of The Bottle: Did China "Outcapitalism" The US, Or Did America "Outcommunism" China?

The patriotic thing preoccupying the lucky successor to Chinese President Hu Juntao will be a simple one: how to promote the well-being, and equality among the people. After all, caring about the people is the primary preoccupation of any good communist country. As such, key concern for the new leader and his government will be the income distribution inequalities and corruption among the Chinese population, something outgoing leader Hu himself stressed. Indeed, as the most recent Chinese Gini coefficient (the measurement of inequality of income in a given society) reading shows, in China this has risen from 0.42 in 2007 to 0.48 in 2009. It is this reason why the Chinese society will have to engage in far more effective wealth redistribution because the last thing the country with no real social safety net can afford is social unrest and upheaval in a time of declining economic growth. So far so good. Where there does arise some confusion, is when juxtaposing Chinese social inequality with that of the US. Recall that China is a de facto communist country, whose society is, at least on paper, equal. One wonders, then, how it happened that US society now has a Gini coefficient that is lower than that of China: did communist China "outcapitalism" the US, or has the US simply, and quite successfully, "outcommunism" China?  

Greek Neo-Nazis Not "Liked" By Facebook

While Google's historic tagline of 'Don't Be Evil' has occasionally been questioned, it would seem Facebook has taken up the mantle (Chinese censorship style). As ekatherimini reports, the third most-supported political party in Greece - the neo-nazi Golden Dawn - has been blocked by Facebook in what the party calls "an act of censorship" and a "relentless attack against nationalist users" of the site. With over 10% of the Greek population currently polled as voting for this nationalist party, evidently Facebook did not 'like' the posting of various Nazi symbols. See no evil, do no evil, 'like' no evil; as it appears Zuckerberg and his California crew will have no evil on their servers (or any other popular political parties' insignia we presume). Raises lots of questions this one...

U.S. Shale Goes Boom, Rest Of World Goes Bust

OPEC, in its World Oil Report, said there's an overall sense that developing shale oil and natural gas could start to redefine the global energy mix. In the United States, the cartel said shale natural gas production alone grew by more than 60 percent from 2010 to 2012.  For shale oil, supplies in the United States have already passed the 1 million barrel-per-day mark. Though shale reserves may ultimately be a game changer, said OPEC, outside the United States, the sector is in its infancy.

A Whole Lotta Something Going On

Sigh... Volume is around 50% of average. USD ends the day unchanged; Treasury futures imply an unchanged cash market; Equity indices close practically unchanged but there are some odd-ones-out on the day. Utilities were sold much more heavily that the rest of the S&P sectors (with Tech the only other red sector). Copper managed an outlier gain while oil/gold/silver all dropped. Individual stocks suffered from some exchange drama but all eyes were on JCP (which potentially lost Mr. Ackman $106mm today and ended with a $17 handle (-13%) - its lowest since March 2009; AAPL slid from 'exciting' opening highs to close -0.75% finding every ramp to VWAP was sold into. VIX was the story of the day as much was made of the collapse in front-end risk premia - this (as we explained earlier) was only half the picture as the longer-dated VIX rose relatively as the fiscal-cliff event risk is gradually priced in at year-end. Stocks were considerably more volatile intraday than broad risk-assets (thanks to Treasuries closure) especially after Europe's close, but they ended the day pretty much recoupled.

The Smartest Investment Of The Decade

Here’s something crazy to think about. Roughly 200,000 people were born today. That’s net world population growth, births minus deaths. Each one of them constitutes a new mouth to feed. And when they come of age, those 200,000 people will consume, conservatively, about 1,250 Calories per day. Collectively, that’s 91.25 billion Calories per year for the entire 200,000 people that were born today. Where will they get that food from?  Increasing demand. Tightening supply. Destructive policy. All of these point to a long-term trend in food. And the trend is enormous. The best case scenario is steep food prices. The worst case scenario is severe shortages. This makes agriculture probably THE place to be over the next ten years. Like owning physical gold, farmland gives you not only the financial upside of rising agricultural prices, but also the personal assurance of a guaranteed food supply.

October Hedge Funds Performance Update: Mixed

 
With the market largely flat in October (the biggest market selloff in one year took place after Obama's reelection), it is no surprise that the most prominent hedge funds performed largely in line with no notable outliers either in the positive or negative columns.

Guest Post: America Isn't The Greatest Country Anymore

It may seem blasphemous on such an important day of remembrance to suggest that what is being protected is somehow not as worthwhile as it once was but as Street Talk Live's Lance Roberts shows America is no longer the greatest country in the world - based on numerous statistics... 7th in literacy, 27th in math, 12th in prosperity...You get the idea.  The rise of economic strength was built on the backs of hard working Americans who built stuff from skyscrapers to railroads.  We farmed, we produced and we raised families.   The pride of "built in America" was the flag that we waved. America has become a debtor nation and the cancer of debt has eroded our economic prosperity. Can America be great again?  Absolutely.  America has an indomitable spirit and a will to succeed unmatched my any on this planet.  It just requires a spark to bring us together. It's not too late for America.  Newsroom's Will McAvoy is right: "The first step in solving any problem is recognizing that there is one."

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On America's Generous "Patriotic Millionaires" Who Just Can't Wait To Pay Down The US Debt

Several months ago, an ad hoc consortium of self-proclaimed millionaires, sent a letter to Obama, Reid and Boehner, demanding that "For the fiscal health of our nation and the well-being of our fellow citizens, we ask that you increase taxes on incomes over $1,000,000." This grass roots initiative sprung up into existence in the aftermath of Warren Buffett's, since defunct, proposal to impose a "millionaire tax" rule. Luckily, as all these very much informed millionaires know quite well, the US Treasury has a dedicated section, named simply pay.gov, which allows anyone: billionaires (here's looking at you Mr. Buffett), millionaire, or even thousandaire, to make a donation which is used directly to pay down the US debt. Because in the absence of the government mandating rich people pay their "fair share" (as determined by a subcommittee of course) for now at least, there is always that other alternative: voluntary action, as per the auspices of something called free will.And not only that, but the US Treasury also provides the general public with a running tally of just how much "Patriotic Millionaire" initiatives have given so far to paying down said debt. As in talk is cheap, signing petitions even cheaper, but putting money where your mouth is actually does go to the bottom line. The bottom line so far in 2012? $7.7 Million - this is how much has been volunteered in total gifts to pay down the US debt. The $16.3 trillion in US debt.

Is VIX Pricing In The Fiscal Cliff?

Much is being made of the drop in VIX today - with some suggesting it indicates confidence that investors believe the fiscal cliff resolution is closer. This could not be further from the truth. Investors had bought short-term VIX across the election and are unwinding that protection in the November futures contract but at the same, they are actively bidding for protection across the event-horizon of the fiscal cliff - out to Fedb 2013. The options market is absolutely not pricing in a fiscal cliff resolution and in fact is just beginning to price in the expected rise in realized volatility as the market becomes increasingly headline-sensitive once again.

Elmo Puppeteer On Leave Following Child Molestation Accusations

  First the BBC, then CIA, then Lockheed... and now Elmo!? AP reports, that: "The puppeteer who performs as Elmo on "Sesame Street" is taking a leave of absence from the popular kids' show in the wake of allegations that he had a relationship with a 16-year-old boy. Sesame Workshop said puppeteer Kevin Clash denies the charges, which were first made in June by the alleged partner, who by then was 23. "We took the allegation very seriously and took immediate action," Sesame Workshop said in a statement issued Monday. "We met with the accuser twice and had repeated communications with him. We met with Kevin, who denied the accusation."" And yes, it appears that even for those who have their hand up Elmo all day long, nothing is sacred any more. The good news: Kevin Clash was not scheduled to testify on Benghazi.

Greek Banks Slump, Spanish Bonds Dump, Juncker 'Fist Pump'

Despite the protestation from Juncker that all-is-well and that the Troika report is positive, Europe is not happy. Bonds and stocks across most of the region's continue to weaken. The sacrosanct 2Y Spanish bond yield has leaked back to one-month highs, 10Y Spanish bond spreads are holding above 450bps (as the yield presses back towards 6%), Greek stocks broadly have given back almost 40% of their recent much-aggrandized dead-cat-bounce (remember our Eastman Kodak analogy), as Greek banking stocks are hammered on the day as recaps (as expected) are much worse than it seems hope-filled investors expected... EURUSD is sliding back towards its swap-spread implied reality. Europe's macro data is breaking lower and while some note US' decoupling, we reiterate (below) this is a lag, not a decoupling.

What Do JCP's Bondholders Know That Shareholders Don't?

 
With JCP's delayed reaction plunge-tastic drop today, it seems shareholders are waking up to the cash-burn and worries implied by the credit market...

Why President Obama Was Reelected

It’s a safe assumption to make that the reelection of Barack Hussein Obama to the office of the United States Presidency will be talked about for decades to come. Like Franklin Roosevelt, Abraham Lincoln, and other “transformative” presidents before him, Obama will be praised for keeping the country together in the midst of economic difficulty. The lavishing has already begun with prominent voices on the left like Paul Krugman declaring the “new America” has made Obama their champion. Like most of what passes for accepted history, this is downright propaganda. The country as a whole wasn’t frightened over sudden change by throwing out the incumbent. It wasn’t a declaration of a new, more diverse America. There is a rational explanation for the President’s reelection which doesn’t invoke a deep or complex meaning. The only way to explain the outcome is in the simplest and direct prose: the moochers prevailed.

Should Iceland Join The EU? YES - 27.3% ; NO - 57.6%

There was one, just one, country that escaped the bankster Mutually Assured Destruction singularity force field in 2009 and after destroying the financial overhang and starting from scratch, has become a paragon of growth in the New Global Depressionary Normal. Iceland (profiled most recently here). As such, what Iceland says is signal, and what the legacy masters of the abovementioned New Normal repeat day after day, is recurring noise. Here is the signal: when Icelanders were asked if they should join the EU, this is what they responded:

• YES - 27.3%
• NO - 57.6%

Q.E.D.

Apple Already Working On Next iPhone, iPad Update

With AAPL's share price 'off the lows', hope is re-emerging that the company-that-can-do-no-wrong is back (23% decline aside). However, a funny thing happened on the way to the AAPL store. Digitimes is reporting speculating (via China Times) that the tech giant is preparing for trial production of the iPhone 5S in December with an iPad update shortly after. It would seem to us that Apple is scrambling - how does a three-month upgrade-cycle sync with a two-year non-free upgrade contract from the telecoms providers? It appears clear that few will participate and upgrade-cycle take-up estimates will have to be reduced. Furthermore, following in the footsteps of Bernanke's some-is-good so more-is-better strategem, we wonder whether the public will begin to adjust their behavior and delay purchase in an ever-decreasing sales loop since the iPhone 'n+1' is only a few months away... especially as the marginal improvement approaches its zero-limit.

Stop Talking Please!

The slow data (and holiday) week will likely keep eyes focused on the 'fiscal cliff' supplying a stiff headwind to stocks as it only reminds investors of the peril which looms directly in front of them. One suggestion I could offer both sides of this debate to avoid any further damage is just to be quiet.  Stop making stump speeches.  We all know your views.  We all know how stridently you will defend them, but your incessant reminders that you have dug in your heels does no good regardless of the negotiating tactic.  Instead, hold a joint press conference and admit there are ideological differences, but announce that both parties will do their best to hammer out a deal palatable enough for everyone. Alas, this is wishful thinking.  As a result, anytime they open of their mouths, most notably Mr. Obama’s, the words they spew will cause damage to share prices. Unfortunately, the President’s drawing a line in the sand on Friday has guaranteed that a countless number of E-Mini bandits will short the futures in front of his speaking which will erode the conviction among managers trying to put money to work. Ironically, it may take an equity market in free fall that ultimately forces compromise.

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