Another day, another US city on the brink of insolvency. This time it's Detroit, whose recently appointed emergency financial manager Kevyn Orr said may run out of cash next month and must cut costs such as long-term debt and retiree obligations. According to Bloomberg, "Orr’s report says the cost of $9.4 billion in bond, pension and other long-term liabilities is sapping the ability to provide such basic services as public safety and transportation. He listed cutting debt principal, retiree benefits and jobs among options he may take. “No one should underestimate the severity of the financial crisis,” He called his report "a sobering wake-up call about the dire financial straits the city of Detroit faces."
Presented with little comment aside to remember what we said the market ignored in 2007... and as a reminder, we warned last night that the Hilsenrath article would be spun to the equity-eating retail public as a positive (just another reason to buy stocks)...
Not much to add here. If there still is any confusion why China is desperately manipulating its economic data, so balatantly in fact that virtually everyone has now noticed, this chart should put all doubt to rest. According to CLSA's Chris Wood using NEA data, China's monthly power consumption (the most accurate proxy for underlying economic strength according to the current premier) growth slowed from 5.5% YoY in Jan-Feb 2013 to 1.9% YoY in March, the slowest growth rate since May 2009 (as discussed in-depth here).
The irony that the 'no taxation without representation' nation's Prime Minister David Cameron is on stage with President Obama amid the IRS-Gate scandal is not lost on us... We are sure the President will distance himself at pace from the witch-hunt - though it could get awkward on stage with the British PM looking on.
Neither side wants to talk about the real lesson of Benghazi: interventionism always carries with it unintended consequences. The US attack on Libya led to the unleashing of Islamist radicals in Libya. These radicals have destroyed the country, murdered thousands, and killed the US ambassador... Previously secure weapons in Libya flooded the region after the US attack, with many of them going to Islamist radicals who make up the majority of those fighting to overthrow the government in Syria. The US government has intervened in the Syrian conflict on behalf of the same rebels it assisted in the Libya conflict, likely helping with the weapons transfers... The real lesson of Benghazi will not be learned because neither Republicans nor Democrats want to hear it. But it is our interventionist foreign policy and its unintended consequences that have created these problems, including the attack and murder of Ambassador Stevens. The disputed talking points and White House whitewashing are just a sideshow.
We, and the TBAC, previously made clear there is a massive shortage of high-quality collateral - the stuff that forms the backbone of modern monetary practice- some $11 trillion to be exact , as the insolvent world encumbers every possible asset that is not nailed down with more and more and more debt. However, we didn't realize that the asset shortage has also spread to food. As it turns out, Malthus may have been right after all. But fear not: the UN has a modest proposal how to resolve this particular asset shortage: Eat Moar Insects, at least according to the FAO's latest report: "Edible insects Future prospects for food and feed security."
There a couple of good reasons to be more than moderately concerned about what’s happening in the fixed income space. Once more my gallant crew, we are sailing into choppy waters... which may mean trouble ahead, but it also spells opportunity! Two things concern us: Firstly, despite global easing, global bond yields have backed up last few days. Immediately the Fed gets the blame with rumours they may scale back QE – which is reactive nonsense. The Fed has made clear we need to see clear evidence of growth, not just hints, before they change course. But the Treasury market is off across the curve. JGBs, Gilts and Europe are all higher last few days. Is this a buying window after some mild panic, or has something really changed? The second issue with the market currently is that global rates are so low the market is losing the will to live/play. When highly speculative CCC names yield less than 7% what's the point in investing? The risk-reward is just too skewed toward higher risk over lowering returns that it simply makes little sense to take.
Thanks to the handy Bloomberg surveillance tools, we know that there are 287 current members of the Federal Reserve Bank of New York with access to a terminal. As of this moment an unimpressive 10% of them (29 to be exact) are signaling green (or active) with Kevin Henry still 'grey' (or untracked), although somewhat expectedly, the bulk of the active NY Fed employees are traders in some capacity. While some in the media would suggest this is somehow critical insights that the Bloomberg reporters can use to completely understand what is going on in the world, we question the usefulness of knowing whether Bill Dudley is logged in. With only 10% online - is that a buy, sell, or hold signal for Goldman or JPM? More importantly, perhaps, we would lose the ability to track the whereabouts of such 'real' Bloomberg users as Fukky Tantang, Diane Beaver, and Ludger Poos.
In keeping with the now constant trend of baffle with BS, since everyone was expecting a weaker advance retail sales print, just like with the BLS report, it was virtually assured that the data would prove everyone wrong. Sure enough, moments ago the census department announced that headline retail sales rose by 0.1% in April, from a downward revised -0.5% in March, beating expectations of a second decline in a row of -0.3%. Retail sales ex autos were in line with expectations at -0.1%, on expectations of a -0.2% print, but it was the sales number ex-autos and gas which surprised the most, rising 0.6% on expectations of a +0.3% increase, up from a -0.1% decline. Of note: gasoline stations saw a dramatic 4.7% drop in sales, following a 3.2% drop in March: are all US commuters now using Back to the Future type hoverboards or just driving to work in the Tesla Model S?
India's economic boogeyman, the monthly trade deficit, continues to rear its ugly head, this and every time, driven be the country's insatiable desire for gold which is so powerful, the country took full advantage of the plunge in gold prices, and saw business imports of gold soar by 138% y/y in April, forcing the trade deficit to hit a 3 month high of $17.8 billion as more fiat left the country in return for bringing in more of the "barbarous relic." Gold imports more than doubled on both a Y/Y and sequential basis, with gold accounting for $7.5 billion, or 18% of total imports, compared to $3.1 billion in March.
For all his endless posturing, North Korea's Un has done absolutely nothing. And if his inability and unwillingness to translate threats into actions continue, that will pretty much be it for North Korea's hope to even get a few loose pennies as a nuisance factor. This may be tested in the next 48 hours as South Korea and the US begin two days of joint naval exercises off the country's east coast, involving the nuclear-powered US aircraft carrier CVN 68 Nimitz. Perhaps more informative than North Korea's bluster will be to see what if any reaction China has to a US presence in a hotly contested (with Japan) naval territory.
In the US, retail sales are expected to continue to slow in the headline, while retail sales ex autos, building materials, and gas should turn positive in April according to Wall Street analysts. Goldman remains below consensus for Thursday's Philadelphia Fed survey, forecasting a slight improvement on the previous month. The firm also expects the flash reading for Euro area Q1 GDP to come in slightly below consensus, consistent with a shallow contraction. We forecast German GDP will turn positive in Q1 after Q4 2012's negative reading. In Japan, GS sees Q1 GDP at 2.8% qoq ann., slightly above consensus, with stronger consumer spending the main driver. Among the central bank meetings this week, Russia, Chile, and Indonesia are expected to remain on hold, in line with consensus.
- Hilsenrath: A Top Contender at the Fed Faces Test Over Easy Money (WSJ)
- Yen drops further as G7 avoids criticizing Japan (Reuters)
- Markets missed Flaherty’s clues on next Bank of Canada chief (G&M)
- Republicans turn screws over Tea Party tax probes (FT)
- Dual-track Libor replacement lined up (FT)
- Risks to China recovery seen as factory output underwhelms (Reuters)
- Barack Obama’s goal of universal healthcare could be set back significantly by Texas Governor Rick Perry (FT)
- Gold Bears Pull $20.8 Billion as BlackRock Says Buy (BBG)
- Mexico sets shelters as volcano shakes, spews ash (AP)
- Europe Eases Corporate Tax Dodge as Worker Burdens Rise (BBG)
- IPOs Set to Raise Most Cash Since Crisis (WSJ)
- Melting Ice Opens Fight Over Sea Routes for Arctic Debate (BBG)
- Top hedge funds bet on Greek banks (FT)
- Icahn Asks Investors to Make Big Bet on a Debt-Laden Dell (BBG)
In the aftermath of the tempest in a teapot scandal surrounding the Bloomberg surveillance of its clients (maybe one should also inquire just what data FaceBook investor Goldman Sachs, not to mention various other data vendors, has on all FaceBook users just to be fair; or whether Goldman feeds its prop desk with REDI trading data ahead of "best-practices" execution; of whether Blue Horseshoe's contact at 555-7617 leaks any material source info to their best connections before an article gets published), which hit a crescendo over the weekend (and certainly brings a new meaning to the Bloomberg radio show "Surveillance"), the firm owned by one of the world's wealthiest men offered its explanation. Here is the full response by Bloomberg's editor-in-chief Matt Winkler.