October 18: Daily Contrarian Reads

Calling The Mullets----Retail Investors Going All-In

In other words, when it comes to retail investors - either on the low, or high net worth side - everyone is now either all in stocks or aggressively trying to get there. Which reminds us of an article we wrote early this year, in which JPM noted that "both institutions and hedge funds are using the rally to sell to retail." Incidentally, the latest BofA client report confirmed that while retail investors scramble into stocks, institutions continue to sell....

The FBI Uncovers The Real Russian Influence Campaign----$145 Million to Clinton Foundation From Uranium One

As the mainstream media continues to obsess over $100,000 worth Facebook ads allegedly purchased by Russian spies in 2016 seeking to throw the presidential election, we're almost certain they'll ignore the much larger Russian bombshell dropped today in the form of newly released FBI documents that reveal for the very first time that the Obama administration was well aware of illegal bribery, extortion and money laundering schemes being conducted by the Russians to get a foothold in the atomic energy business in the U.S. before approving a deal that handed them 20% of America's uranium reserves...and resulted in a windfall of donations to the Clinton Foundation.

What's Really At Stake In Catalonia

The key reason Madrid is wrong on this issue relates to its insistence that Spain must sustain itself in its current form forever. Since Spain is a manmade political creation, this is the modern equivalent of claiming a “divine right of kings,” but rather than bestowing this archaic conception on individual rulers, it’s bestowed upon a nation-state. This is not just an absurd position, it’s patently anti-human. As I discussed in the post, It’s Time to Question the Modern Nation-State Model of Governance.

September Industrial Production---Even Less than Meets The Eye

Industrial Production rose 1.6% year-over-year in September 2017. That’s up from 1.2% growth in August, both months perhaps affected to some degree by hurricanes. The lack of growth and momentum, however, clearly predated the storms. The seasonally-adjusted index for IP peaked in April 2017, and has been lower ever since. This pattern, the disappointment this year is one we see replicated nearly everywhere on both sides (supply as well as demand) of the global economic equation.

So Much For Red Capitalism----Under Xi It’s Getting Just Plain Red

Today, Mr. Xi has set aside such notions. In today’s China, state intervention attempts to engineer economic outcomes, ranging from raw-materials prices to the value of stocks and the currency. State-owned corporate giants are bulking up, with private capital funneled into them for support. The agency Mr. Xi toyed with dismantling is back in the driver’s seat. Going into his second term, Mr. Xi finds relying on markets too risky and state capitalism a better model. When the Chinese leadership talks of reform today it doesn’t mean economic liberalization as it did in, say, the era of Deng Xiaoping. It means fine-tuning a government-led model.

Bursting At The Seams----Trump's Runaway Defense Budget

Of the $700 billion, about $640 billion is the Pentagon’s base budget and another $60 billion dollars is allocated to fight simultaneous wars in Afghanistan, Syria, Iraq and elsewhere. This whopping amount exceeds last year’s $619 billion, thus flouting the “sequestration” spending caps in the 2011 Budget Control Act. Trump and the Republicans want to use budget savings from domestic spending to finance the defense spending increases. However, they will need Democratic votes to break the sequestration caps; the Democrats’ price for doing so is a logrolling that would also require increases in domestic spending.

The Ponzi That Jack Ma Built

They’ve made billions of dollars helping sell everything from iPhones to hairdryers on China’s burgeoning online shopping platforms. Now, tech giants led by Alibaba Group Holding Ltd.’s finance affiliate are making money off the loans consumers use to buy those products. Amid surging demand from cash-strapped Chinese millennials, companies such as Ant Financial -- controlled by Alibaba’s billionaire founder Jack Ma -- have been extending more consumer loans. The firms are then packaging the debt into complex financial products that they then sell on to investors, with Ant Financial selling at least 149 billion yuan ($23 billion) of the so-called asset-backed securities this year, according to data compiled by Bloomberg and local research firm China Securitization Analytics.

The Myth of Natural Monopoly

It is a myth that natural-monopoly theory was developed first by economists, and then used by legislators to "justify" franchise monopolies. The truth is that the monopolies were created decades before the theory was formalized by intervention-minded economists, who then used the theory as an ex post rationale for government intervention. At the time when the first government franchise monopolies were being granted, the large majority of economists understood that large-scale, capital-intensive production did not lead to monopoly, but was an absolutely desirable aspect of the competitive process.

The Retail Apocalypse Just Sabotaged The Nordstrom's LBO

The writing had been on the wall for Nordstrom since the beginning of the month, when reports started to trickle out that the family was struggling to raise enough debt to finance the deal. While the company had been in discussions to get roughly $1 billion from the private-equity firm Leonard Green & Partners, the total transaction was estimated to need closer to $10 billion, the New York Post reported.

Whistling Past The Grave----Traders Have Never Been More Confident That Volatility Is Dead

Traders have never been so sure that volatility in US stocks is over, at least looking one month ahead. Nothing quite demonstrates that mindset more than the chart below.

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