Last week I noted that unwinding the carry trade and QE in Japan, China and Europe would mean money finding its way into US markets. $37.5 billion in the last two weeks according to Merrill Lynch. How can the markets not go up? And so they continue up, new highs three times a week.
Here's what the country looks like now, with individual congressional districts colored according to the party of their congressman.
Oil continues to slide, down nearly to $75, a three year low. This is looking less and less like a market move, and more and more like a deployed weapon. Most think it's Saudi Arabia's way of telling us to stop fracking and screwing up their cozy little income stream. Morgan Stanley estimates the average break even oil price for US fracking to be about $76 to $77 per barrel. Goldman Sachs puts that number at closer to $75. A lot of fracking is financed by junk bonds; if the frackers shut down perhaps some of the bonds turn out to be worthless. Russia survives substantially on oil exports so since the price of oil has started dropping the ruble has collapsed by 15%. Iran and Venezuela are also very exposed to price drops.
Gerard Minack, YAHFB (Yet Another Hedge Fund Billionaire) notes that the fed discount rate that triggers a recession has been falling for 30 years. He points out, "The peak in the real Fed fund rate required to trigger a recession has fallen in every cycle since 1980. This pattern reflects lower trend growth and rising leverage - both of which tend to reduce the neutral policy rate. This pattern will continue, in my view. The peak in the real fed fund rate required to trigger the next recession will likely make a new low. 1% couple cripple real growth. Worse, if the peak in rates is so low, it will leave the fed little room to battle the next downturn." Another interesting question is, what happens to banks in about 5-8 years when that curve hits zero and the economy can't tolerate any interest rate above zero?
UN atomic inspectors say Iran's stockpile of low-enriched uranium gas (5% enriched) has grown by 8 percent to nearly 8.4 tonnes in the last two months. While they're "negotiating" with us, they're also full steam ahead on getting ready to make as many bombs as possible in the shortest time. I have no faith in Iran's good intentions or restraint. Their expressed goal is to dominate the middle east and eradicate Israel. I believe them.
Iran is also using the negotiations to make headway in Iraq and Syria. Obama doesn't want to put more pressure on Iran outside the nuclear negotiations (I honestly have no clue why not) so he's letting them arm and train more people to bolster their puppet Maliki government in Iraq and Assad in Syria. Personally, I'd like as much instability in the middle east as possible so that they're too preoccupied fighting each other to mount terrorist attacks outside arabia, and in his own bumbling way Obama is doing an excellent job of fostering instability throughout the region.
In a rogue vote on Sunday that was denounced as a "farce" by Kiev and illegitimate by the West, Alexander Zakharchenko took the oath to "honestly serve the interests of the people of the Donetsk People's Republic and conscientiously fulfill my duties." Donetsk is the new name of eastern Ukraine, where the majority speak Russian. We can expect the Russians to recognize him shortly, so from the perspective of Russia the Ukraine is now split into two countries. Meanwhile AP reporters say they saw 80 unmarked military trucks streaming into Donetsk from Russia carrying men, arms and artilary, apparent reinforcements. Russia immediately denied it, of course. Ukrianian rebels continue to resist in the area, unsuccessfully and in many cases fatally. The only question in my mind is, is Russia laying claim to the eastern 20% of the Ukriane, or are they preparing for a spring push westwards to reclaim the whole thing? Russians are not stupid enough to willingly wage offensive war in their winters.
Putin recently said, "All systems of global collective security now lie in ruins. There are no longer any international security guarantees at all and the party responsible for the destruction of global collective security is The United States of America. The builders of the New World Order have failed by having built a sand castle. Russia does not wish for the chaos to spread, does not want war, and has no intention of starting one. However, today Russia sees the outbreak of global war as almost inevitable, is prepared for it, and is continuing to prepare for it. Russia does not war, nor does she fear it." I don't see WW III as inevitable, but I'm deeply concerned about it.
As the dollar goes up and other currencies drop, unsurprisingly the trade deficit is also expanding - by 8% in september. The Euro dropped to below $1.25 for the first time in three years, and the ruble dropped to 21¢, the lowest ever. The yen is down to 115 to the dollar, the lowest price in seven years. This is going to get worse and cost us jobs. Gold also continues to drop, hitting a low of $1138 - $100 per ounce less than two weeks ago and the lowest price in four years. As the carry trade unwinds other countries are going to need dollars and we're going to make them pay dearly for them.
Junker, the new unelected president of the EU and former prime minister of Luxembourg, is under pressure as journalists have dug up documents showing that he was at the center of deals to help international companies evade taxes in their home countries - including Pepsi, HSBC, Amazon, IKEA, and as many as 2000 others.
China's news agency Xinhua said more than 40 percent of China's arable land is suffering from degradation, reducing its capacity to produce food for the world's biggest population. The rich black soil in northern Heilongjiang province, which forms part of China's bread basket, is thinning, while farmland in China's south is suffering from acidification, the report said, citing agriculture ministry statistics.
As China continues to slide towards what appears to be a recession, the government approved $113 billion worth of infrastructure projects to keep workers employed and corrupt politicians in charge and rich. The projects included 16 railways and five airports, with the aim of propping up a decline in real estate investment and a suffering construction industry.
A new Bankrate survey reveals that 53 percent of current Obamacare enrollees who signed up through the exchanges said they would not be enrolling for 2015. Their reason: "much higher prices for health plans." After a year under Obamacare, they're finding out that the deductibles are quite expensive and the average 6% increase in insurance prices isn't helping.
The non-partisan political analytics firm Crowdpac used information about federal campaign contributions dating back to 1980 to determine the political biases of various professions. Crowdpac found the entertainment industry, news media, and academia were among the most liberal professions in America. If you thought they leaned left, well, without the Y-axis to lean on they'd fall over. In the graphs below, the blue bars to the left indicate people in each industry who are more liberal, and the red bars to the right show those who are more conservative:
Ebola watch: Virologists believe that Ebola is spread when people come in contact with the virus-laden bodily fluids of those who are already sick and then touch their eyes, nose or mouth, allowing the virus to pass through mucous membranes and enter the bloodstream. But hemorrhagic-fever expert Thomas Ksiarek of the University of Texas Medical Branch (UTMB) says many questions remain.