The Big Picture

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• Ayn Rand Was NOT a Libertarian
• 10 Thursday PM Reads
• Cliff, Stocks, Churchill
• Household Debt In America
• More positive commentary for the US “fiscal cliff”
• 10 Thursday AM Reads
• EIGHT DAYS
• No, Small Probabilities Are Not “Attractive to Sell”: A Comment
• Cheetahs: Full Speed Running in HD Super Slow Mo
• QE4 vs Dead Cat Bounce
• Is China Over-Investing and Does it Matter?

Ayn Rand Was NOT a Libertarian Posted: 29 Nov 2012 10:30 PM PST Rand Hated Libertarians … and Many Libertarians Despise Rand Many people assume that Ayn Rand was a champion of libertarian thought. But Rand herself pilloried libertarians, condemning libertarianism as being a greater threat to freedom and capitalism than both modern liberalism and conservativism. For example, Rand said: All kinds of people today call themselves "libertarians," especially something calling itself the New Right, which consists of hippies, except that they're anarchists instead of collectivists. But of course, anarchists are collectivists. Capitalism is the one system that requires absolute objective law, yet they want to combine capitalism and anarchism. That is worse than anything the New Left has proposed. It's a mockery of philosophy and ideology. They sling slogans and try to ride on two bandwagons. They want to be hippies, but don't want to preach collectivism, because those jobs are already taken. But anarchism is a logical outgrowth of the anti-intellectual side of collectivism. I could deal with a Marxist with a greater chance of reaching some kind of understanding, and with much greater respect. The anarchist is the scum of the intellectual world of the left, which has given them up. So the right picks up another leftist discard. That's the Libertarian movement. *** I'd rather vote for Bob Hope, the Marx Brothers, or Jerry Lewis [than a candidate from the Libertarian Party]. *** [Libertarians] are not defenders of capitalism. They're a group of publicity seekers who rush into politics prematurely, because they allegedly want to educate people through a political campaign, which can't be done. Further, their leadership consists of men of every of persuasion, from religious conservatives to anarchists. Moreover, most of them are my enemies: they spend their time denouncing me, while plagiarizing my ideas. Now, I think it's a bad beginning for an allegedly pro-capitalist party to start by stealing ideas. *** Now here is a party that plagiarizes some of my ideas, mixes it with the exact opposite—with religionists, anarchists, and just about every intellectual misfit and scum they can find—and they call themselves Libertarians, and run for office. I dislike Reagan and Carter; I'm not too enthusiastic about the other candidates. But the worst of them are giants compared to anybody who would attempt something as un-philosophical, low, and pragmatic as the Libertarian Party. It is the last insult to ideas and philosophical consistency. *** [Question] Why don't you approve of the Libertarians, thousands of whom are loyal readers of your works? [Rand] Because Libertarians are a monstrous, disgusting bunch of people: they plagiarize my ideas when that fits their purpose, and they denounce me in a more vicious manner than any communist publication, when that fits their purpose. They are lower than any pragmatists, and what they hold against Objectivism is morality. They'd like to have an amoral political program. *** The Libertarians aren't worthy of being the means to any end, let alone the end of spreading Objectivism. Rand also disagreed with libertarians on foreign policy.  For example, most libertarians – including Ron Paul – oppose military intervention against Iran, while the Ayn Rand Institute has supported forceful intervention in Iran. Rand denounced Arabs as "primitive" and "one of the least developed cultures" who "are typically nomads."  Consequently, Rand contended Arab resentment for Israel was a result of the Jewish state being "the sole beachhead of modern science and civilization on their (Arabs) continent", while decreeing that "when you have civilized men fighting savages, you support the civilized men, no matter who they are." (Many libertarians were highly critical of Israeli government at the time.) Sandeep Jaitly of Fekete Research says that real libertarians do not follow Rand's philosophy. Murray Rothbard – founder of modern libertarianism, chief academic officer of leading libertarian think tank the Mises Institute, and one of the most important thinkers in the Austrian School of Economics – argued in 1972 that Rand was a champion for her own aggrandizement, not for liberty or reason. Rothbard accused Rand -in a long but must-read essay – of being acting like a typical cult leader: The Ayn Rand cult … flourished for just ten years in the 1960s…. It also promoted slavish dependence on the guru in the name of independence; adoration and obedience to the leader in the name of every person's individuality; and blind emotion and faith in the guru in the name of Reason. *** Since every cult is grounded on a faith in the infallibility of the guru, it becomes necessary to keep its disciples in ignorance of contradictory infidel writings which may wean cult members away from the fold. *** Just as Communists are often instructed not to read anti-Communist literature, the Rand cult went further to disseminate what was virtually an Index of Permitted Books. *** The philosophical rationale for keeping Rand cultists in blissful ignorance was the Randian theory of "not giving your sanction to the Enemy." *** In a development eerily reminiscent of the organized hatred directed against the arch-heretic Emanuel Goldstein in Orwell's 1984, Rand cultists were required to sign a loyalty oath to Rand; essential to the loyalty oath was a declaration that the signer would henceforth never read any future works of the apostate and arch-heretic Branden [Rand's number 2]. After the split, any Rand cultist seen carrying a book or writing by Branden was promptly excommunicated. *** Cultists were required to swear their unquestioning belief that Rand was right and Branden wrong, even though they were not permitted to learn the facts behind the split. In fact, the mere failure to take a stand, the mere attempt to find the facts, or the statement that one could not take a stand on such a grave matter without knowledge of the facts was sufficient for instant expulsion. For such an attitude was conclusive proof of the defective "loyalty" of the disciple to his guru, Ayn Rand. *** Just as the Marxist movements developed jargon and slogans which were clung to for fear of uttering incorrect deviations, the same was true in the Randian movement. In the name of "precision of language," in short, nuance and even synonyms were in effect prohibited. *** Wit and humor, as might be gathered from this incident, were verboten in the Randian movement. The philosophical rationale was that humor demonstrates that one "is not serious about one's values." The actual reason, of course, is that no cult can withstand the piercing and sobering effect, the sane perspective, provided by humor. One was permitted to sneer at one's enemies, but that was the only humor allowed, if humor that be. Personal enjoyment, indeed, was also frowned upon in the movement and denounced as hedonistic "whim-worship." In particular, nothing could be enjoyed for its own sake – every activity had to serve some indirect, "rational" function. Thus, food was not to be savored, but only eaten joylessly as a necessary means of one's survival; sex was not to be enjoyed for its own sake, but only to be engaged in grimly as a reflection and reaffirmation of one's "highest values"; painting or movies only to be enjoyed if one could find "rational values" in doing so. All of these values were not simply to be discovered quietly by each person – the heresy of "subjectivism" – but had to be proven to the rest of the cult. In practice, as will be seen further below, the only safe aesthetic or romantic "values" or objects for the member were those explicitly sanctioned by Ayn Rand or other top disciples. *** Any such confession meant a harrowing process of ideological and psychological purification, supposedly ending in one's success at achieving rationality, independence, and self-esteem and therefore an unquestioning and blind devotion to Ayn Rand. *** One top young Randian … was deathly afraid to ask the question, it being so basic that he knew he would be excommunicated on the spot for simply raising the point; but he had complete faith that if Rand should be asked the question, she would answer it satisfactorily and resolve his doubts. And so he waited, year after year, hoping against hope that someone would ask the question, be expelled, but that his own doubts would then be resolved in the process. In the manner of many cults, loyalty to the guru had to supersede loyalty to family and friends – typically the first personal crises for the fledgling Randian. If non-Randian family and friends persisted in their heresies even after being hectored at some length by the young neophyte, they were then considered to be irrational and part of the Enemy and had to be abandoned. The same was true of spouses; many marriages were broken up by the cult leadership who sternly informed either the wife or the husband that their spouses were not sufficiently Randworthy. Indeed, since emotions resulted only from premises, and since the leaders' premises were by definition supremely rational, that top leadership presumed to try to match and unmatch couples. *** One girl, a certified top Randian, who experienced the misfortune of falling in love with an unworthy non-Randian. The leadership told the girl that if she persisted in her desire to marry the man, she would be instantly excommunicated. She did so nevertheless, and was promptly expelled. *** But the most important sanction for the enforcement of loyalty and obedience, the most important instrument for psychological control of the members, was the development and practice of Objectivist Psychotherapy. In effect, this psychological theory held that since emotion always stems from incorrect ideas, that therefore all neurosis did so as well; and hence, the cure for that neurosis is to discover and purge oneself of those incorrect ideas and values. And since Randian ideas were all correct and all deviation therefore incorrect, Objectivist Psychotherapy consisted of (a) inculcating everyone with Randian theory – except now in a supposedly psycho-therapeutic setting; and (b) searching for the hidden deviation from Randian theory responsible for the neurosis and purging it by correcting the deviation. *** It is no wonder that the enormous psychological pressure of cult membership led to an extremely high turnover in the Randian movement, relatively far more so than among the Communists. *** Such fear was greater than that of a Communist member, because the Randian had far less leeway for ideological or personal deviation. Furthermore, since Rand had an absolute and total line on every conceivable question of ideology and daily life, all aspects of such life had to be searched – by oneself and by others – for suspicious heresies and deviations. Everything was the object of fear and suspicion. There was the fear of making an independent judgment, for suppose that the member was to make a statement on some subject on which he did not know Rand's position, and then were to find out that Rand disagreed. *** Every Randian lived in – and indeed was himself – a community of spies and informers, ready to ferret out and denounce any deviations from Randian doctrine. Thus, one time a Randian, walking with a girl friend, told her that he had attended a party at which several Randians had made an impromptu tape imitating the voices of the top Randian leaders. Stricken by this dire information and after spending a sleepless night, the girl rushed to inform the top leadership of this terrible transgression. Promptly, the leading participants were called on the carpet by their Objectivist Psychotherapist and bitterly denounced in their "therapy" sessions: "After all," said the therapist, "you wouldn't mock God." When the owner of the tape refused the therapist's demand to relinquish it so that it could be inspected in detail, his doom as a member of the movement was effectively sealed. No Randian, even the top leadership, was exempt from the all-pervasive fear and repression. Every one of the original cadre, for example, was placed on probation at least once, and was forced to demonstrate his loyalty to Rand at length and in numerous ways. *** Cult theory decreed that happiness can only be achieved by being a committed Randian; they couldn't even be intelligent, since how could seemingly intelligent people not be Randians, especially if they commit the gravest sin – failing to become Randians once they were exposed to this new gospel. *** The errant member was peremptorily ordered to appear at a "trial" to hear charges against him. If he refused to appear – as he would if he had any shred of self-respect left – then the trial would continue in absentia, with all the members present taking turns in denouncing the expelled member, reading charges against him (again in a manner eerily reminiscent of 1984)…. Having his closest friend take the leading part in the heresy proceeding was of course important as a way of forcing the friend to demonstrate his own loyalty to Rand, thereby clearing himself of any lingering taint by association. It is reported that when Branden was expelled, one of his closest former friends in New York sent him a letter proclaiming that the only moral thing he could do at that point was to commit suicide – a strange position for an allegedly pro-life, pro-individual-purpose philosophy to take. *** Robotically, the Randians intoned their slogans, generally imitating the poses and manner of Nathaniel and Barbara Branden, and further, imitating their common cult vision of heroes and heroines of the Randian fictional canon …. Many of the young men managed to look like carbon copies of Branden, while the young women tried to look like Barbara Branden, replete with the cigarette-holder held aloft, derived from Ayn Rand herself, that was supposed to symbolize the high moral standards and the mocking contempt wielded by Randian heroines. *** Preferring Bach, for example, to Rachmaninoff, subjected one to charges of believing in a "malevolent universe." lf not corrected by self-criticism and psychotherapeutic brainwashing, such deviation could well lead to ejection from the movement. *** If the Rand line was totalitarian, encompassing all of one's life, then, even when all the general premises were agreed upon and Randians checked with headquarters to see who was In or Out, there was still need to have some "judicial" mechanism to resolve concrete issues and to make sure that every member toed the line on that question. No one was ever allowed to be neutral on any issue. The judicial mechanism to resolve such concrete disputes was, as usual in cults, the rank one enjoyed in the Randian hierarchy. *** There was an unofficial designation that was far more revealing: "the senior collective" …. each and every one of them was related to each other, all being part of one Canadian Jewish family, relatives of either Nathan or Barbara Branden. There was, for example, Nathan's sister Elaine Kalberman; his brother-in-law, Harry Kalberman; his first cousin, Dr. Allan Blumenthal, who assumed the mantle of leading Objectivist Psychotherapist after Branden's expulsion; Barbara's first cousin, Leonard Piekoff; and Joan Mitchell, wife of Allan Blumenthal. Alan Greenspan's familial relation was more tenuous, being the former husband of Joan Mitchell. The only non-relative in the class of '43 was Mary Ann Rukovina, who made the top rank after being the college roommate of Joan Mitchell. *** The Rand cult was concerned not with every man's individuality, but only with Rand's individuality, not with everyone's right reason but only with Rand's reason. The only individuality that flowered to the extent of blotting out all others, was Ayn Rand's herself; everyone else was to become a cipher subject to Rand's mind and will. *** The guiding spirit of the Randian movement was not individual liberty – as it seemed to many young members – but rather personal power for Ayn Rand and her leading disciples. For power within the movement could be secured by totalitarian isolation and control of the minds and lives of every member; but such tactics could scarcely work outside the movement, where power could only hopefully be achieved by cozying up the President and his inner circles of dominion. Thus, power not liberty or reason, was the central thrust of the Randian movement. The major lesson of the history of the movement to libertarians is that It Can Happen Here, that libertarians, despite explicit devotion to reason and individuality, are not exempt from the mystical and totalitarian cultism that pervades other ideological as well as religious movements. Hopefully, libertarians, once bitten by the virus, may now prove immune. Postscript:  Ayn Rand's main real life hero was apparently a serial killer.  See this, this and this.  That doesn't mean that she didn't write great books; but it does call her judgment into question.

10 Thursday PM Reads Posted: 29 Nov 2012 01:00 PM PST My afternoon train reading: • Felix Salmon: Charts of the day, equity volume edition (Reuters) • How we read, not what we read, may be contributing to our information overload (Nieman Journalism Lab) • How Political Campaign Spending Brought Down the Roman Republic (Slate) • Cate Long: Sallie Krawcheck should not run the SEC (Reuters) • Two Interesting Pieces About Real Estate Economics (Green Economics) see also Empty Quarter: Boston’s Financial District is hollowing out. That’s a big problem—but may also be an opportunity. (Boston Magazine) • Jesse Eisinger: New Financial Overseer Looks for Advice in All the Wrong Places (ProPublica) • Where even the earth is melting (SMH) see also The Glacier National Park may soon have to change its name: How global warming has taken its toll on America’s wilderness (Daily Mail) • Is Our Debt Burden Really $100 Trillion? (The Atlantic) • Human Evolution Enters an Exciting New Phase (Wired) • Even Newt Gingrich knows the “fiscal cliff” is a scam (Digbys Blog) see also Fiscal Cliff Showing Many GOP Budget Beliefs To Be Myths (Capital Gains and Games) What are you reading?   An undemanding recovery Source: The Economist

Cliff, Stocks, Churchill Posted: 29 Nov 2012 12:00 PM PST Cliff, Stocks, Churchill David R. Kotok Cumberland Advisors, November 29, 2012       We have written about the Washington charade, including the fiscal cliff and the debt limit. For details see www.cumber.com . Our friend and fishing buddy Jim Bianco summed the situation up in a note. What we like about Jim's work is his numeracy and his intellectual commitment to accuracy. We thank Jim for permission to quote him. "Currently the Treasury is just $81 billion from the $16.394 trillion debt ceiling limit. This limit is expected to be reached in the next two weeks. After that the Treasury will run down its cash balances and 'borrow' from government trust funds and pension funds. This should allow the government to fund itself through February. As a side note, if a private sector company funds itself by running down cash balances and raiding trust and pension funds, everyone goes to jail. When the government does it, it is considered sophisticated asset/liability public sector management." Jim Bianco, November 28, 2012 Meanwhile, financial markets are looking past the political debate. Stock prices are rising worldwide. The US seems to be a leading market among the larger mature ones. Payroll growth in the US continues slowly, and Fed policy remains predictable for a considerable period. Inflation is low and likely to be tame for some time. Cumberland remains fully invested. We expect stocks to go higher and, maybe, much higher. Our bond positions continue to maintain mid-to-longer durations. It is too soon to sell out all the bonds and panic about a future rise in interest rates. That time will come but not for a while. Bond credit decisions are key! This is especially true in the state and local government sector. We worry about states such as Illinois and California. The so-called state fiscal "fixes" of higher taxation and inadequate reforms are not working. California cities remain a danger spot. We are seriously avoiding most of them. General fund balances deteriorate. More trouble lies ahead in the local budgeting arena. The key for an investor is to dig, dig, dig. Research in municipal credits is critical. The old days of "it's insured and AAA" are gone. Now to another correction of a quote we used. We are bullish on intellectual pursuit and the importance of accuracy. In a writing that followed our error with the Tocqueville quote, we cited two attributions to Winston Churchill. We published the links to the verification sources. The exact text we used is, "Winston Churchill said, 'It has been said that democracy is the worst form of government except all the others that have been tried.' Churchill also said, 'You can always count on Americans to do the right thing – after they’ve tried everything else.' ” Well, we were half right. That is better than the zero percentage we scored on Tocqueville. Our friend and another fishing buddy Scott Frew drew on his relationship with a Churchill scholar, who sent the reply copied below. We asked for and obtained permission to reproduce the message. For those who are still reading and enjoy the intellectual pursuit of accuracy, as we do, here is the message that Scott Frew received. Dear Mr Frew Thank you for your email. I have conducted some research on these two quotes using an extensive book we have here on Churchill's words and those misattributed to him by Richard Langworth. It seems that the quote, 'Americans can always be trusted to do the right thing, once all other possibilities have been exhausted' is unattributed to Churchill. He certainly would never have said this publicly, as he was careful about slips such as this, and it cannot be found in the memoirs of his colleagues. The author has it as a 'likely remark' as he did have sentiments like this from time to time during World War II. Of the other quote on democracy Churchill certainly said it, in the House of Commons on 11 November 1947, but he was quoting an unknown predecessor and did not originate the famous remark about democracy. 'No one pretends that democracy is perfect or all-wise. Indeed it has been said that democracy is the worst form of government…' Regards, Philip Cosgrove Archives Assistant Churchill Archives Centre Churchill College Cambridge CB3 0DS Thank you, Scott Frew, Philip Cosgrove, and all readers who noted the issues about quotations and accuracy of research. ~~~ David R. Kotok, Chairman and Chief Investment Officer Cumberland Advisors.

Household Debt In America Posted: 29 Nov 2012 09:13 AM PST I like this chart of U.S. Household Debt — we now owe a bit less than at the peak of the bubble: $11.4 trillion, with Mortgage/home-equity debt still the biggest amount of that debt (by far).       Source: Household Debt In America, In 3 Graphs Lam Thuy Vo and Jacob Goldstein NPR, November 26, 2012 http://www.npr.org/blogs/money/2012/11/21/165657931/household-debt-in-america-in-3-graphs

More positive commentary for the US “fiscal cliff” Posted: 29 Nov 2012 08:16 AM PST Australian Q3 business investment rose by +2.8%, Q/Q, higher than the +2.0% expected. However, prospective data is likely to confirm further weakening. I remain short the A$, against the US$ and have increased my short; Output at Toyota’s Chinese plants slumped by 61% in October, with Honda down 54%. However, sales appear to be picking up this month. The future problem, however, is that Japan (if Abe becomes PM) will become more nationalistic and further confrontation with China is likely. I remain short the Yen, against the US$; Japanese retail sales declined by -1.2% Y/Y in October, the most in 11 months, well below the -0.8% Y/Y expected and a reversal of the +0.4% rise in September; Seems like a never ending story – Chinese stocks declined yet again. However, I would be reluctant to short at these levels. If anything, in spite of being bearish on China for some 3 years, I believe a bounce in Chinese equity markets in coming months is more likely. As usual politics in China is the most important factor. The new regime takes over in March and I will be reading their comments, particularly carefully; The Indian Government is to allow MP’s to vote on plans to allow majority ownership by foreign retailers of multi-brand products. No big deal, most would believe, but it has been a major bone of contention in India. It looks as if allies, including some regional parties, will not vote against the proposals. If they do vote against (deemed unlikely), it will be a major setback for the reform plans announced by the finance minister/PM. The PM had to call a vote as the opposition had stalled Parliament. The Indian equity market has been firm recently (up +1.8% today), suggesting that the measures will be passed. The Rupee, which has been particularly weak, rose the most in 2 months and I would expect the trend to continue, as well as the markets; Greek Central Bank emergency lending to their banks rose to E122.79bn in October, as opposed to E100.64bn at the end of September; Moody’s reports that the level of Greek debt will remain unsustainable, even after the most recent “deal” with the EZ/IMF and that a default is likely in due course. Well, of course its unsustainable – simply cannot understand why the EZ, in particular, thinks otherwise. Greek bankers are objecting to the proposed debt buy back. Greek banks hold some E15bn of Greek debt, with pension funds holding E8bn of bonds. However, the government is likely to use a fair amount of arm twisting to force these banks to accept a debt buy back, details of which are expected to be released next Monday; German November seasonally adjusted unemployment rose by +5k, to 2.939mn, less than the +16k expected, but the 8th consecutive monthly rise. The unemployment rate was unchanged at 6.9%. Expect unemployment to continue to rise, ex seasonal factors, though to put it into perspective it remains at a near 2 decade low. However, the view that private consumption will take over from exports and production, is misguided, in my humble view. Counter intuitively, rising unemployment may be positive – the German authorities may well back off their “hair shirt” policies, in particular, as general elections are due next September; EZ November final consumer confidence came in at -26.0 in line with the initial estimate. The economic confidence index came in higher (85.7, as opposed to 84.5), as did industrial confidence (-15.1, as opposed to -17.1) together with the services component (-11.9, as opposed to -12.5) and the business climate indicator (-1.19, as opposed to -1.60); The Irish unemployment rate declined marginally to 14.8% in Q3, from 14.9 in Q2. Of more significance, the volume and value of mortgage approvals rose by +27% M/M, though a better and more meaningful data point is that mortgage approvals increased +14% Y/Y. However, the increase is off a very low base, lending standards are tightening and short term stimulus measures end at the end of the year. The government is likely to extend these measures in the forthcoming budget, I would have thought. (Source Goodbody); US October new home sales fell by -0.3% coming in at 368k M/M, lower than 390k expected and a downwardly revised 369k in September. The decline was concentrated in the Northeast (hurricane Sandy effects) and the South. Disappointing, but the median sales price rose by +5.7% Y/Y; After the negative comments a few days ago, US House speaker Mr Boehner appears willing to agree to revenue increases, as long as their are spending cuts as well. He added that he was optimistic that a deal could be done. A US Senator reports that Republicans and Democrats are just US$23bn apart. Interestingly, the WSJ reports that the White House is flexible on the level of top rate tax. There are reports that the Democrats may propose a 1.5% wealth tax. I continue to believe that this will take time to settle. Having said that President Obama hopes to do a deal before Christmas, stating that more Republicans are willing to agree to a “balanced approach”; The FED beige book reports that US economic activity expanded at a measured pace in recent weeks. Activity was slower due to Hurricane Sandy. Retailers were more optimistic, though wage and price pressures were subdued. They remain cautious about employment, adding that there was only a “modest improvement in hiring”; John Hilsenrath, a FED watcher at the WSJ, advises that the FED is likely to continue its bond buying programme into 2013. The FED has been buying some US$40bn of MBS’s per month and this programme is likely to continue. Operation Twist ends in December and many FED officials want to continue the programme; The 2nd reading of US Q3 GDP came in at +2.7%, slightly lower than the +2.8% expected, though well above the 1st reading of 2.0%. Inventories and trade contributed the most to the rise. One worrying data point – consumption was +1.4% as opposed to +1.9% expected. Business investment came in -2.2%, worse than the -1.3% expected, though election and fiscal cliff concerns impacted – likely to reverse next Q. Core PCE was +1.1% Q/Q, lower than the +1.3% expected; US initial jobless claims came in at 393k, in line with expectations of 390k, though lower than the revised 416k for the previous week. Continuing claims were 3.287mn, lower than 3.325mn expected and a downwardly revised 3.357mn previously; US October pending home sales rose by +5.2% better than the +1.0% expected. Y/Y sales rose by 18.0%, as opposed to a revised +8.7% Y/Y in September and +8.9% expected; The Brazilian finance minister Mr Mantega states that Q3 GDP rose by 4.0% on an annualised basis. The Central bank kept interest rates on hold at 7.25%, an all time low and down from 12.25% in August last year and signalled that they would remain low for quite a while. The Central bank did not cut interest rates for the 1st time in more than 1 year. He believes that GDP will grow by 4.0% in 2013 and 2014, somewhat optimistic, I would have thought. Outlook Asian markets (ex China) closed higher on hopes that Republicans and Democrats will do a deal on the fiscal cliff. European markets are also higher, in particular Spain and Italy – Spain to request a bail out?. Spanish and Italian bond yields are also declining sharply, suggesting Mr (ditherer) Rajoy, may finally pull his finger out and request a bail out. The Euro is back close to US$1.30, though has drifted off those levels – I would expect it to rise further, especially if Rajoy moves to request a bail out. I remain wary of the Greeks, but will not short the Euro at present, though itching to do so at higher levels. Gold has rebounded to US$1725 on news that the FED is likely to continue to buy bonds and January Brent is higher at US$110.99. US markets have opened higher – around +0.4%. Will look for a sell off before I increase my positions. Kiron Sarkar 29th November 2012

10 Thursday AM Reads Posted: 29 Nov 2012 06:45 AM PST My morning reads: • The Absence of Market Fear is Scary (Barron’s) see also The Biggest Risk: Complacency Over Fiscal Cliff (Barron’s) • Wait for a Good Pitch to Hit (Above the Market) • Are BRICS the World's New Banker? (The Diplomat) • The invisible bailout: Why the US economy is growing while Europe's slides (Quartz) • The death of volatility? (FT Alphaville) • The Case for More Stimulus (And Bigger Deficits) (Policy Shop) but see World Economy in Best Shape for 18 Months, Poll Shows (Bloomberg) • Which has fared best in the crisis, old money or new? (The Telegraph) • Boring Conference is Surprisingly Interesting (Slate) • Holiday Shopping Tips From a Behavioral Economist (Bloomberg) see also My Annual Holiday Shopping Gift Ideas (TBP) • How to make your children intelligent (Economic Logic) What are you reading?   Invisible bailout: Why US economy is growing but Europe's  slides Source: Quartz

EIGHT DAYS Posted: 29 Nov 2012 05:58 AM PST The move higher this morning in the S&P futures takes it back to the 50 day moving average of 1416 on hopes that negotiations in DC are proceeding as hoped. We’ll get a deal and stocks will like it temporarily but I repeat my belief that it won’t be a good one in terms of honestly facing the fiscal challenges at the same time tax increases will hurt economic growth as it’s by definition contractionary. To quantify according to the CBO, in 2012 the US Federal Gov’t is expected to spend $3.56T (and similar amount in 2013) which equates to almost $9.8B per day. If the Bush tax cuts on the top 2% expire, about $80B per year will be raised (under the static assumption that all else is equal) thus paying for the Federal Gov’t for about EIGHT DAYS. Without tax hikes in 2012, the revenue into the Federal Gov’t rose by $132b. Economic growth does amazing things. Without market based solutions to healthcare that slows the rate of spending, cosmetic changes to our financial fate is all we’ll get and slower growth too. In Europe, more signs for now of optimism that the worst is over is evident on the heels of yesterday’s decision by the EU to approve the disbursements of euros to Spanish banks. Yields are lower again in both Spain and Italy after Italy sold 5s and 10s totaling 6B euros, in line with their target amount and at yields about 50 bps below those sold last month. EC economic confidence rose 1.4 pts off the lowest level since July ’09. German unemployment did rise for an 8th straight month but not as much as expected. Italian business confidence is still bouncing along a bottom but did gain .7 pts to a 5 month high. Also, a UK retail sales index rose 3 pts to a 5 month high. Elsewhere, Brazil left rates unchanged as expected and the Shanghai index still can’t get out of its own way, closing down another .5%.

No, Small Probabilities Are Not “Attractive to Sell”: A Comment Posted: 29 Nov 2012 05:30 AM PST

Cheetahs: Full Speed Running in HD Super Slow Mo Posted: 29 Nov 2012 05:00 AM PST This is the most insane thing I have watched this week: A National Geographic film crew captured insane slow mo footage of cheetahs running 60+ MPH using a Phantom high speed camera filming at 1200 frames per second. The film is a companion piece to the National Geographic article "Cheetahs on the Edge."   60mph+ Cheetah Run Cheetahs on the Edge–Director’s Cut from Gregory Wilson on Vimeo.   Making of the Video Cheetah Project National Geographic Magazine from Gregory Wilson on Vimeo.   See more at Cheetahs on the Edge: Directors Cut For more on the conservation of cheetahs and other big cats, check out the National Geographic Big Cats Initiative.   Hat tip Laughing Squid

QE4 vs Dead Cat Bounce Posted: 29 Nov 2012 04:28 AM PST click for updated futures   Since the market began its retrenchment a month ago, we have seen rallies on weak volume and selloffs on stronger volume. Historically, these are the characteristics of Dead Cat Bounces and softer rallies destined to fail. But over the past few years, we have also seen markets rally on expectations of each and every new Fed intervention. QE4 was trial ballooned on Wednesday afternoon by the WSJ’s Jon Hilsenrath (Fed Stimulus Likely in 2013). History teaches us that whenever the Fed wants to do a new intervention, they let the Street know by telegraphing their intentions this way. They thinking seems to be, “Don’t say we didn’t warn you.” James Bianco, with tongue firmly planted in cheek, has called Jon “The actual Federal Reserve Chairman.” In reality, Jon took over the slot formerly owned by Greg Ip (now at The Economist) as the Fed’s favored conduit to Wall Street. Despite the earnings weakness, dividend and capital tax avoidance trades, anemic volume and general complacency, yesterday saw a strong intra-day reversal in US equities. Markets shifted from down half a percent to up half a percent. Some of my technical friends will call this a triple-outside day — opening below the low of the past three days, and closing above the high of the past three days. What this means is that short term, the 0fficial kick off of the Santa Claus rally is here. Traders can game this for a run up to the September highs. Investors have a trickier challenge: This likely ends badly, but the QE4 announcement by acting FOMC chair Hilsenrath suggests just not yet. I want to see how markets trade today, but I suspect that there is an upside play for this rally into years end, perhaps even into Q1. Things get much trickier beyond that. Let’s be careful out there . . .

Is China Over-Investing and Does it Matter? Posted: 29 Nov 2012 03:00 AM PST

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