February 3: Daily Contrarian Reads

A Massive Speculative Bubble Meets an Errant Pin

Recall that the housing bubble and subsequent global financial crisis had two sources. On the demand side, the Federal Reserve’s decision to hold short-term interest rates at just 1% after the 2000-2002 market collapse created yield-seeking demand among investors for relatively safe but higher yielding alternatives to Treasury bills. They found that alternative in mortgage securities. On the supply side, a poorly regulated Wall Street was more than happy to create new “product” by churning out new mortgage securities……The resulting global financial collapse taught us nothing. That same misguided codependence between Federal Reserve and Wall Street has now produced yet another speculative episode. Years of zero-interest rate policy have produced a mature first half of a yield-seeking bubble-crash cycle, but the objects of speculation have now extended to both the stock market and the debt market (particularly the higher-yielding but junkier “covenant lite” variety that provides little protection in the event of bankruptcy). The unpleasant second half of this cycle remains ahead.

Debt and Deficits Are About to Matter Again for Investors

But a funny thing happened on the way to the nirvana of post-crisis deleveraging. In February 2015, McKinsey & Co. threw cold water on this idealistic notion with a watershed report titled “Debt and (Not Much) Deleveraging.” How on earth had the world tacked on $57 trillion of incremental debt in the seven years after the eruption of the crisis we feared would end the world? Had we not learned our lesson? And yet, no crisis has erupted in the two years since the McKinsey report. Has the pendulum swung clear back to the debt doesn’t matter at all extreme? Chances are we’re about to find out. The era of zero interest rates, and negative rates overseas, has glossed over debt that’s built up since 2007.

The CIA’s “Deep State”, Donald Trump and His “War On Terrorism”

The CIA enjoys a virtually unlimited black budget and virtually unlimited power that is beyond the reach of the law, and beyond the control of the White House.Yet here was Trump ingratiating and sweet talking the agency that, under the order of John Brennan (on behalf of Hillary Clinton and the Bushes), actively engaged in unprecedented efforts to destroy him….Trump swooned, in sickly sweet fawning fashion….Is Trump naïve, uninformed, or playing some Orwellian game?

If You Can’t Move The Metal, Spiff The Deal——Auto Discounts Rising Again

Toyota led major carmakers reporting lower U.S. sales in January, even as an industry trying for another record year piled on discounts to keep showrooms busy. Deliveries fell about 11 percent for both Toyota and Fiat Chrysler Automobiles NV. Sales also dropped for General Motors Co. and Ford Motor Co., pacing a 1.8 percent decrease for the industry in January, according to Autodata Corp. Automakers spent about $645 more per vehicle on discounts, about $3,635 on average in January, according to ALG, which projects car and truck resale values. The industry relied on rich incentive offers and deliveries to rental-car companies and other fleet customers last year to seal a seventh straight year of expansion.

Ukraine Sabotages Trump’s Russia Detente

Less than two weeks into office, President Trump faces one of the first big tests of his non-confrontational policy toward Russia. As new fighting erupts in Eastern Ukraine, the Kiev regime and its U.S. supporters are predictably demanding a showdown with Vladimir Putin……Initial evidence suggests, however, that the latest flare-up in this nearly three-year-old conflict was precipitated by Kiev, possibly in the hope of forcing just such a confrontation between Washington and Moscow. It’s looking more and more like a rerun of a disastrous stunt pulled by the government of Georgia in 2008, which triggered a clash with Russia with the expectation that the George W. Bush administration would come to its rescue and bring Georgia into the NATO alliance.

Will Donald Trump Reverse the War on Cash?

It’s very simple. Globalism is the centralization of power into a couple of global institutions: the EU, the United Nations, the IMF, the World Bank, NAFTA, NATO, and so on. It’s really just a polite way of describing world government, or what George H.W. Bush termed the New World Order. I think globalism and the centralization of power is always a bad thing. People who value individual freedom and economic freedom… really, freedom in general, should oppose it…..The War on Cash is a prop. It forces people out of cash and into banks. So it’s no surprise the war is ramping up as banking systems deteriorate.

The Sentiment Premium And Noise In The Business Surveys

Remarkably, then, it is the ISM Chicago and its volatility that appears to be closer to the facts on the ground – confusion and uncertainty rather than unbridled joy at the maybe future possible prospects for “stimulus” that can’t yet be specified. The economy itself is little to no different from last year, in more than just durable goods, just as it was 2013-14 as compared to an also near-recession in 2012. I cannot be completely unsympathetic to the divergence in positivity of the PMI’s, as it is often hard to believe at times that the economy could actually be so bad for so long. It would seem by nothing more than mere random chance that growth might return, but as we see in these repetitions it never does defying all odds (and confirming depression rather than business cycle)…….The economy remains stuck, but there are now regular intervals when we feel better about it.

Rents Plunge in Costliest US Cities, Soar in Mid-Tier Cities

The overall figures of relatively sanguine year-over-year rent increases in the US hide the drama playing out city by city, with rents plunging in the most expensive markets while they’re soaring in less expensive markets….These plunging rents in some markets and soaring rents in many other markets – the real drama playing out on the ground – are averaged away in the national numbers. According to Zumper, on a national level in January, the median asking rent for a one bedroom apartment rose a practically boring 2.4% year-over-year to $1,143, and the median two-bedroom rent rose 2.3% to $1,358.

200 Years of US Immigration Visualized On One Map—-Who They Were And Where They Came From

In the interactive data visualization below, each country or region of last residence is represented by color, in a stream whose thickness represents the number of people arriving from that area in a given year….Immediately, two things stand out: boom and bust in the immigration rate (it’s easy to assume that it has always been increasing) and the new diversity of immigrants after World War II….Regardless of the political moves ahead, nearly 200 years of immigration suggests that no one leader or piece of legislation is capable of staunching the diverse flow of immigrants to the US.

General Flynn’s War Drums On Iran—–The Flimsy Basis

It wasn’t hard to see this coming. President Trump’s National Security Advisor, Gen. Michael Flynn, delivered a clear threat to the government of Iran today, ominously stating that “as of this day, we are officially putting Iran on notice.” What is less clear is the the General’s rationale for issuing the threat…..UN Security Council Resolution 2231 “calls on” Iran to not undertake any activity related to ballistic missiles capable of delivering nuclear weapons, but this section has been interpreted as a request rather than a prohibition. There are no specific provisions in the nuclear deal that explicitly prevent Iran from testing a missile.