Mustering
Support
by
Sinclair Noe
DOW
+ 6 = 14,937
SPX + 2 = 1655
NAS + 9 = 3658
10 YR YLD + .08 = 2.98%
OIL + 1.23 = 108.46
GOLD – 23.90 = 1368.70
SILV - .25 = 23.31
SPX + 2 = 1655
NAS + 9 = 3658
10 YR YLD + .08 = 2.98%
OIL + 1.23 = 108.46
GOLD – 23.90 = 1368.70
SILV - .25 = 23.31
The
war hasn't started, yet.
President
Obama is in St. Petersburg Russia for the G-20 summit, he received a
cordial but cool greeting from Russian President Vlad Putin, however
Putin had harsh words for Secretary of State John Kerry, calling him
flat out a “liar”, referring to his testimony regarding Syria, a
close ally of Russia.The
United States has given up trying to work with the U.N. Security
Council on Syria, accusing Russia of holding the council hostage.
Russia, backed by China, has used its veto power three times to block
council resolutions condemning Assad's government and threatening it
with sanctions.
Yesterday,
a Senate panel authorized military action in a “limited and
specified manner”. A full vote is expected next week. Syria
is dominating a summit with an official agenda focused on economic
growth, monetary policy and global banking and tax rules.
Obama began meeting with
other leaders of the Group of 20 nations, trying to persuade allies
to give the US a measure of political cover even if they withhold
military support. Obama has already met with Shinzo Abe
of Japan, Francois Hollande of France – who may be the only US ally
taking part in a strike against Syria, and also a meeting with Dilma
Rousseff of Brazil.
Brazil
won't be part of any military action, and Rousseff might even cancel
a planned trip to the White House in October 23rd; the
reason has nothing to do with Syria. Rather the Brazilian President
is a bit ticked off about information leaked by Edward Snowden that
shows the US spied on communications between Rousseff and her top
aides. Brazil’s
Senate is creating a committee to probe the spying allegations and
seek federal police protection for Glenn Greenwald, the journalist
who revealed the documents from Snowden. Brazil's foreign minister
said: “This represents an inadmissible and unacceptable violation
of Brazilian sovereignty. This kind of practice doesn’t live up to
the type of trust needed to have a strategic partnership.”
Indeed,
the pressure for military action in Syria will find reluctance from
several countries as it follows in the footsteps of the Snowden
allegations. And if Obama can't muster international support for
military intervention in Syria, it will make the job of Congressional
support more difficult. Various handicappers believe the resolution
would go down to defeat if the vote were held today. So far, the
Administration has been unable to make much of a case, beyond moral
outrage. In a post Iraq world, people are actually asking pertinent
questions like: how long will it last? What is the objective? How
much will it cost? So far these are unanswered or inadequately
answered questions. It's interesting that they can always find money
for military action isn't it?
It
is entirely possible that we could soon witness the amazing spectacle
of Congress defeating a war resolution backed by the president and
every top elected leader.
Of
course, a resolution can be defeated and not killed outright.
Remember TARP? The first vote for TARP was defeated and it took a
market swan dive, a second TARP vote, and the addition of lots of
pork to reverse the initial vote. But also bear in mind that the
reason TARP was initially voted down was the barrage of voter phone
calls and e-mails against it, reportedly 99% opposed until financial
services firms started getting employees to call in favor of the
bill, which shifted the tally to a mere 80% or so of callers opposed.
Even
if the President musters enough votes to strike Syria, at what
political cost? Any president has a limited amount of political
capital to mobilize support for his agenda, in Congress and, more
fundamentally, with the American people. Time and again we have seen
domestic agendas succumb to military adventures abroad — both
because the military-industrial-congressional complex drains money
that might otherwise be used for domestic goals, and because the
public’s attention is diverted from urgent problems at home to
exigencies elsewhere around the globe.
We've
mentioned before that Syria is a minor player in the oil markets, but
geographically any action there would have an affect on oil prices.
The rarely noticed reason is that Syria is closely allied with Iran,
and indeed this whole Syria thing may have more to do with Iran than
Syria. Anyway, if something happens, we'll likely see a spike in oil
prices. We've been seeing oil over $100 a barrel and gasoline above
$3.40 a gallon for much of the last 3 years. Those prices would have
shocked many Americans a few years ago, but have now become the new
normal.
What
changed? Well, Americans are breaking their addiction to driving, at
least a little. We own fewer cars per household than just a few years
ago. Unfortunately, some of the reduction in motor gasoline
consumption directly relates to massive under-employment, especially
among those under 25, as well as lower wages among the employed. And
the cars we own are more fuel efficient. The average fuel efficiency
for new cars sold in the US just six years ago was only 20.8 miles
per gallon; today it's 24.8 MPG. That may not sound like much, but
it's about a 20% improvement.
Higher
domestic production and lower American consumption have meant
declining imports of crude oil and petroleum products-- a reversal of
another once seemingly inexorable trend. The economic burden of
imported oil is represented not by the number of barrels, but instead
by the real value of the resources we must surrender in order to
obtain the oil. The dollar value of petroleum imports as a share of
GDP has come down a little as a result of recent gains in production
and conservation, but still remains significantly elevated relative
to the levels of a decade ago.
Let's get back to economic news.
Tomorrow
we'll see the monthly jobs report for August. We got some clues
today. Jobless claims declined
by 9,000 to 323,000 in the week ended Aug. 3.
Employers
seem to be holding the line on dismissals. Meanwhile, ADP, the
private payroll processing firm issued their monthly report which
showed companies increasing employment by 176,000 workers in August.
The ADP report does not always match with the government report, but
folks like to use it for guesstimates anyway. It's widely expected
the economy added 175,000 to 180,000 jobs last month, up from July's
gain of just 162,000. Anything over 200,000 would tilt the odds
heavily in favor of the Fed beginning to taper QE security purchases
at the FOMC meeting in two weeks.
Bill
Gross, the head of PIMCO, in his September letter to investors says
that central
banks' easy money policies have become less effective in generating
economic stability, and that zero-bound interest rates have
threatened finance and investment in the "real economy."
Gross
writes: "Why invest in financial or real assets if bond prices
could only go down, and/or stock prices could no longer be pumped up
via the artificial steroids of QE?"
Gross
added that liquidity will be "challenged" when policymakers
start to tighten easy money policies and stocks may also be "at
risk" when the Fed ends its bond-buying program. In other words,
the Fed's exit from QE might not be baked into the cake just yet.
If you've been listening to the Financial Review for more than a day or two, you know that I think the banking system poses a systemic threat to the economy. A few years ago I wrote a book called “Eat theBankers”, and you can follow these daily broadcasts at the website EattheBankers.com. So, it is reassuring for me when I hear others jumping on the bandwagon. I'm not going to go into detail, but Simon Johnson, the former chief economist for the International Monetary Fund, recently wrote an article for Bloomberg, and I'm posting the link: The title is: Bank Leverage is the DefiningDebate of Our Time.
If you've been listening to the Financial Review for more than a day or two, you know that I think the banking system poses a systemic threat to the economy. A few years ago I wrote a book called “Eat theBankers”, and you can follow these daily broadcasts at the website EattheBankers.com. So, it is reassuring for me when I hear others jumping on the bandwagon. I'm not going to go into detail, but Simon Johnson, the former chief economist for the International Monetary Fund, recently wrote an article for Bloomberg, and I'm posting the link: The title is: Bank Leverage is the DefiningDebate of Our Time.
The
basic idea of the article is that excessive leverage could bring down
the world economy again. And the next financial collapse could be
even worse than what we experienced in the fall of 2008. The debate
is between the Too Big to Fail Banks that want to take more risks
precisely because they can draw on implicit or explicit
government guarantees, and on the other side are sane people who
realize that the banks could destroy the economy.
The
banks don't want to set aside safe, reserves, they'd rather take that
money and gamble. Letting banks calculate their own risk weights or
develop their own methodologies makes no sense -- conflicts of
interest predominate when you are too big to fail. But asking rating
companies or government officials to come up with meaningful risk
weights also is doomed to fail. They lack the information, motivation
and compensation incentives to do this right.
We've
had this debate before; at the beginning of the 20th
century Teddy Roosevelt brought a case against JPMorgan's Northern
Securities Company as part of the anti-trust movement. The case was
ultimately decided by the Supreme Court in the government's favor.
Had the monopolists won, instead
of enjoying a vibrant competitive economy and a century of
unprecedented growth that made the U.S. the world’s greatest power,
we would have likely ended up like other unfortunate countries where
a few oligarchs rule to the disservice of the broader public and the
greater good of the economy.
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