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Investors Fear More Than Just a 'Fiscal Cliff'


 

The Dow plunged 313 points yesterday, but don’t believe news media reports that it was the nearness of the “fiscal cliff” that caused the selloff. What spooked investors is a bigger picture that recognizes the economically catastrophic implications of a second Obama term.  To be clear, there is nothing Romney could have done to avoid the deflationary Depression that lies ahead.  However, a Romney presidency might have at least served as a reality check on malfeasant fiscal practices, delaying the onslaught of hard times for perhaps long enough to allow Americans to put their financial houses in better order before austerity is imposed on us with the force of an earthquake, as it has been on Europe.

 

 

We’re not going to dwell on the choice Americans made on Tuesday. Suffice it to say, the election has substantiated conservatives’ worst fear – that, sooner or later, Big Government’s clients would come to outnumber those of us who pay for the criminal extravagances of their voracious welfare state. Actually, it turns out they needn’t have outnumbered us, since the quirks of the electoral college have enabled them to execute a coup even though they lacked a statistically significant majority.

 

Bread and Circuses

 

Now, with a $16+ trillion federal deficit that is growing by more than a trillion dollars per year, the nation’s descent toward insolvency can only accelerate, further widening the gap between tax revenues and outlays. Soaking the rich, even by taxing them at 100%, would not begin to arrest the decline, but just try to tell that to those who voted for Obama. Bread and circuses will be their reward, and far be it from us to predict that they will feel unsatisfied. Rather, the opposite should hold true, since it will not have cost the 47% a dime.

 

As far as the stock market is concerned, we were quite surprised to find some bullish opportunities in the dozen or so charts reviewed in real time during a “Hidden Pivot Analysis” session held Wednesday morning at Rick’s Picks.  Amazon, Priceline and Facebook, among others, look promising, suggesting these companies, and presumably a few others, may be able to buck a depressionary tide, perhaps by focusing on nickel-and-dime sources of revenue. If you’re interested in the details, as well as the reasons for our bearish outlook on the broad averages, a recording of the session is publicly available.

The Real Winner of the Presidential Election


8164995180 4f8b99c43a b The Real Winner of the Presidential ElectionImage by William Banzai

 

US News and World Report notes that Bernanke helped Obama to get re-elected by juicing the economy … at least temporarily:

The Federal Reserve had a key role in the presidential election—possibly even a decisive one.

 

Exit poll results show that, not surprisingly, a majority of voters said the struggling economy was their top concern …. In the end, voters seemed to believe the economy was gradually getting better, and Obama deserved more time to make things right.

 

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Without question, the biggest factor impacting the economy this fall was the Federal Reserve’s decision in September to extend its controversial quantitative easing program indefinitely, until the economy is back on track for good. This type of monetary easing is an arcane strategy that doesn’t directly impact consumers. But it can have a powerful effect on the economy that filters through to ordinary people in many important ways. And the biggest advocate of quantitative easing has been Fed Chairman Ben Bernanke.

 

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Consumer confidence, in fact, rose sharply in the weeks leading up to the election, even as business leaders were becoming more worried about problems such as the looming fiscal cliff. That’s one thing that pushed our Obamanometer reading onto Obama’s side. The Fed probably had as much to do with that as anything else.

 

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Bernanke has also shown himself to be a pragmatist determined to do whatever is necessary to help the economy recover today, even if it risks unpleasant consequences—such as higher inflation—in the future. Voters seem to approve. So maybe the politicians ought to listen.

While Romney is as mainstream economically as Obama, he did make noises about auditing the Fed, criticized additional Fed easing, called Fed stimulus “artificial”, “ineffective” and “just making it up”, promised to appoint some monetary hawks, and said that he would challenge Bernanke’s re-appointment.

Some of it was undoubtedly attempting to appease Ron Paul supporters (and other libertarians), who hate the Fed. But at least some of it appears to have been genuine.

As such, the big winner from the election is the Federal Reserve.

Postscript: Numerous economists say that we must end or substantially rein in the Fed.  Both liberal and conservative protesters – Occupy and Tea Party alike – have railed against the unchecked power of the Federal Reserve.

Support among the public and House for auditing the Fed is almost 100% … but Democratic Senate leader Reid has vowed to kill an audit (even though he previously supported it). Given that Obama has been re-elected, and the Dems have kept the Senate, it appears that the Fed will retain its powers without any real checks or balances.

US Credit Euphoria Suggests More Caution Ahead


Credit markets have been bleeding wider recently but based on Credit Suisse’s ‘Risk Appetite Index’, they remain high in Euphoria territory in the US. This is worryingly crowded on its own but the key point that they note is the divergence between US exuberance and the rest-of-the-world’s far less sanguine view of credit. The risk-appetite spread between the two has been this wide two times before in recent years – July/August 2011 (which saw a major sell-off – debt ceiling) and April/May 2010 (another major sell-off – end of QE and flash-crash). As we noted earlier, equity market valuations are very much pinned to risky credit now and so this indicator is yet another canary-in-the-coalmine…

Comparing Credit Suisse’s Global and US Credit Risk Appetite Indices (blue dotted lines are peak divergences…)

 

which happen to coincide with rather notable selling pressure in credit (and hence equity) markets…

Marc Faber's Asset Protection Plan: "Buy A Machine Gun", No Really, "You're Right, Buy A Tank"


Trish Regan and Adam Johnson do their best to hold themselves together in this sublime rant by ‘Gloom, Boom & Doom’s Marc Faber on Bloomberg TV as he sees Obama’s re-election as “very negative for the economy”. From his view that the market should be down at least 20% – and maybe 50%, to the implied ignorance of both of the candidates, he believes fervently that the “standards of living of people in the western hemisphere will continue to decline.” Faber views Obama’s re-election as one of many unintended consequences of market manipulation (since Democrat attacks on the wealthy were ‘enabled’ by their profiteering from Bernanke’s money printing) and sees the need to protect one’s assets “with a gun, a machine gun... or perhaps a tank.” He concludes with a stunner as he exclaims his view doubting Obama will make it through the whole four-year term because “there will be so many scandals” since “there is so much smoke, there must be some fire!”

 

The pre-amble is useful and well worth listening to as Faber describes exactly what is occurring in the world…

The good stuff begins around 7:30 as Faber goes Baumgartner… and gives the Bloomberg hosts a taste of reality we suspect they have not heard from their run-of-the-mill portfolio manager sheep guests…

 

 

Faber on President Obama’s reelection:

“I am surprised with the reelection of Mr. Obama. The S&P is only down like 30 points. I would have thought that the market on his reelection should be down at least 50%…I think Mr. Obama is a disaster for business and a disaster for the United States. Not that Mr. Romney would be much better, but the Republicans understand the problem of excessive debt better than Mr. Obama who basically doesn’t care about piling up debt. You also have in the background Mr. Bernanke, who with artificially low interest rates enables the debt to essentially escalate endlessly.”

Onwhere he sees the equity markets given Obama’s reelection:

“You have offsetting factors. The problem with Mr. Obama is that you get more regulation and it’s disincentive for businessmen to hire people. You probably also get higher taxes, so in terms of the economy, he is very negative in my view. But you still have Mr. Bernanke, and you still have because of money printing very high corporate earnings. They are now coming down, but they are still at the elevated level. You have money printing supporting the market and on the other hand, you have an economic slowdown globally which will affect earnings negatively. It is difficult to tell where the market will go because we have so much manipulation. I think, minimum, it will drop 20%.”

On how investors should protect their assets:

“They should buy themselves a machine gun…I need to buy a tank. Joking aside, look, we have manipulated markets. Whenever you manipulate markets, you will get unintended consequences. i think the reelection is unintended consequence of money printing, that favors the so- called 0.25%. It was easy for the Democrats to attack the wealthy fat cats of Wall Street, the elite, and the privileged people to portray them as a profiteer of the system, which to some extent, they are. Not because they wanted to but because Mr. Bernanke enabled them to be profiteers. We have a situation where you have today Mr. Obama, I doubt he will stay at the presidency for another four years. I think there will be so many scandals, but that’s another story.”

On why he believes Obama won’t make it another four years as president:

“There is so much smoke. I suppose there is some fire. That is my observation. We don’t know how the world will look in five years’ time. I am pretty sure central banks will continue to print money and the standards of living for people in the western world, not just in America, will continue to decline because the cost of living increases will exceed income. The cost of living will also go up because all kinds of taxes will increase. Like Proposition 30 today in California is of course negative for the Californian economy. That is the state of the world. We have worsening economic conditions, but we have money printing.”

On Speaker Boehner’s comments to Congress today on the fiscal cliff:

“I am sure that they will solve it. They will increase cosmetically some taxes and they will cut cosmetically some spending and it will all be back loaded 10 years from now. So in reality, not much will happen. But the market tends to rally towards year-end, and i think from a low of around 1360, we could have a rally to January, but I think sometime next year will be again lower.”

On whether he sees the U.S. in recession in 2013:

“Yes, I think that if the figures were compiled properly. If nominal GDP was adjusted by a proper price deflator, we would probably already be in recession…But I would like to point out one thing about the economy. GDP is not a very relevant figure. It consists of many different sectors of the economy, so you can have some sectors that are improving like housing and others that are worsening.”

On his dollar and euro positions:

“This is the choice in life. You choose what is less bad. I don’t particularly like Mr. Obama, but I think he is less bad for the world than Mr. Romney. It is a tragedy of life that both candidates did not lose the election. They would have deserved both to lose.”

Greek Austerity Vote Passes


Just in case someone thought Greece would voluntarily vote to cut out the funding – any funding – of free money from the ECB, via ELA or otherwise, regardless if only 10% of said money actually makes it into Greek society, we have some bad news: the Greek parliament once again voted to impose austerity upon itself. This includes numerous Yay votes by deputes who had said previously they would vote against the measure.

  • SAMARAS HAS VOTES FOR GREEK AUSTERITY BILL
  • FINAL VOTE: 153 FOR, 128 AGAINST, 18 ABSTAIN
  • PASOK EXPEL 6 MEMBERS; ND EXPELS 1 MEMBER FOR VOTING AGAINST PARTY LINE

And yes, this time will certainly be different unlike all those other times. Or maybe not. In the meantime, the rioting, and daily strikes by everyone, most certainly the tax collectors, will continue indefinitely, until even more spending has to be cut to match the decline in revenues, and so on, until finally the singularity of no more revenues and no more spending is hit.

Until then, the main resurgent sponsor of any business venture will be, as reported earlier, local brothels.

Now the ball is back in Germany’s, and Troika’s, court to come up with further conditions to not disburse the €31.5 billion in addition aid, which judging by the EURUSD’s exuberant response (+2 pips), will be quite copious.

Finally, for those confused about the Greek mindset, here is the only explanation you need: