It appears once again that the behavior of a liquidity-constrained high-beta market-price is encouraging excitement among some of the world's 'smartest' media mavens. "But, but, but, 'China' at 52-week highs must mean something?" we hear. Well three things on that meme: 1) the 52-week high Hang-Seng is not reflective of 'China' fundamentals per se - instead a far faster-money inflow/outflow liquidity indicator; 2) China's Shanghai Composite remains extremely weak; and 3) the Hang-Seng has had three false (and dramatic) swings in the last three years which have all reverted painfully fast (1 bearish and 2 bullish) - do you believe this time is different? Fall 2010 and Spring 2012 both looked great - until they crashed and burned...
Nearly two years ago, and progressing to this day, we first observed (and subsequently even the mainstream media caught on) that America's labor force is slowly but surely converting itself from a full-time to part-time worker society. The reasons for this are obvious: to corporations, the benefits associated with employing part-time workers are countless: avoiding substantial benefits-related costs, evading long-term job contracts, hourly basis wages, and many others. In fact, as long as there is slack in the economy, and there will be for a long, long time as the shift in labor demand is now secular, regardless of what the Fed wants to admit, employers will have ever more leverage, while workers have less and less (and are forced to agree to any employment terms, as long as they get some paycheck at all). This much has been known. What has gotten far less prominence is that of the much trumpeted 4+ million jobs added since the trough in late 2009, virtually all the job additions have gone to (part-time) workers 55 years and over. Indeed, as the chart below shows, starting since the official NBER end of the recession in June 2009, the US has cumulatively added 2.9 million jobs. However, when broken down by age cohort, 3.5 million of these jobs have gone to US workers aged between 55 and 69. Another 729K have gone to recent college grads aged 20-24. What about those workers in their prime years: between 25 and 54 years of age? They have lost a total of 886,000 jobs since June 30, 2009!
While the media continues to push the idea that the housing market is on the mend the data really doesn't yet support such optimism. The current percentage of the total number of housing units available that are currently occupied remains at very depressed levels. When it comes to the reality of the housing recovery the 4-panel chart (below) tells the whole story. There is another problem with the housing recovery story. It isn't real. The nascent recovery in the housing market, such as it has been, has been driven by the largest amount of fiscal subsidy in the history of world. The problem, however, is that for all of the financial support and programs that have been thrown at the housing market - only a very minor recovery could be mustered. With household formation at very low levels and the 25-35 cohort facing the highest levels of unemployment since the "Great Depression" it is no wonder that being a "renter" is no longer a derogatory label.
Equities slipped to their lowest close since Draghi's 'I-have-a-dream' speech and 4th red day out of the last 5. Things were choppy in a tight range before the FOMC and immediately after (aside from a little noise) but as the close approached S&P futures tested yesterday's lows, APPL slipped from its VWAP moorings (but ended green) and even FB eased lower (10% off its pre-open highs). The last hour saw selling pretty much everywhere as Treasury yields popped 2-3bps (even as stocks fell), Gold slid, Oil Slid more and the USD sold off into the close. Given the 'distance' between bonds and stocks, this compression might make some sense (thanks to a lack of anything new from Bernanke to keep the wolves from the depression door). Credit markets tracked stocks - though HYG tried to outperform, only to fade Baumgartner-like into the close. Stocks caught down to VIX's weakness from yesterday and then VIX decided to outperform flat into the close as stocks ended just 'off the lows' as CNBC would say. Only Citi remains green from post-QEtc. among the financials with Buffett's fave WFC -7.9% since 9/14.
This will learn him:
- RAJAT GUPTA GETS 24-MONTH PRISON SENTENCE FOR INSIDER TRADING
- RAJAT GUPTA FINED $5 MILLION
Moral of the story: steal $100 million (illustratively: nobody knows what the bottom line impact of the criminal activity was: could be more, could be less) -> spend two years in a minimum security country club, electric golf carts included. Look for a surge in insider trading cases with this ruling which makes risks to getting caught trading on inside information not only acceptable, but in fact welcome. The good news, for Jon Corzine at least, is that if the MF Global case ever gets to the sentencing stage (it won't), his sentence would be to fly coach class for 24-48 hours.
Presented with little comment except to note that the ebullience (pre-crisis spread levels and dramatically rising PIK Toggle issuance?) driven by flow/technicals and financial repression - even in the face of releveraging and fundamental deterioration will see an over-crowded euphoric group of investors knocking at Ben's door when this turns to dysphoria as the credit cycle inevitably does...
UPDATE: Stocks are at the day's lows now as risk is reverting lower and USD higher
The market had a small conniption immediately after the FOMC minutes were released as algos were quickly switched off but since then little has moved. The main 'theme' if any is one of a lower USD, higher Gold, and lower stocks with Treasuries and Oil flat (for now)...
America has over 44 million people on Food Stamps. The food stamps program's real name is Supplemental Nutrition Assistance Program (SNAP). The Food Stamp program is "hidden" from view through Electronic Benefit Transfer (EBT) Cards that work just as credit cards. This article visualizes the size of the program and the vast amounts of people participating.
As we noted earlier, the Fed tweaked the language a little on the latest economic data but chnaged nothing on their plans for our 'great recovery':
- *FED SAYS HOUSING SECTOR SHOWS SOME FURTHER SIGNS OF IMPROVEMENT
- *FED SAYS U.S. HOUSEHOLD SPENDING ADVANCED `A BIT MORE QUICKLY'
- *FED REPEATS `EXCEPTIONALLY LOW' RATES AT LEAST THROUGH MID-2015
- *FED REPEATS IT WILL CONTINUE OPERATION TWIST THROUGH YEAR-END
- *FED TO KEEP BUYING $40B A MONTH OF MORTGAGE-BACKED SECURITIES
- *FED REITERATES `SIGNIFICANT DOWNSIDE RISKS' TO ECONOMY
Pre: 10Y 1.775, ES 1410.5, Gold 1701, EUR 1.2964
Legendary oilman T. Boone Pickens famously calls America’s oil imports ‘the greatest transfer of wealth in the history of the world.’ Pickens is referring to the money that is paid each year to oil exporting nations, particularly those in the Persian Gulf which raked in around $100 billion last year. No doubt, this is an enormous transfer of wealth. But it’s a drop in the bucket compared to the TRILLIONS that Ben Bernanke gives the world’s elite. It constitutes, by far, the greatest transfer of wealth in history, vastly exceeding America’s energy imports. It’s an unconscionable, immoral, ridiculous game. But there’s good news– we can stop playing whenever we want. We don’t HAVE to hold their worthless currency. We don’t HAVE to keep transferring our purchasing power to an elite group. We can “opt-out”. Trade as much of their paper as you can for something REAL, especially physical precious metals.
There was a time when the announcement of lawsuits against Bank of America for the fraudulent mortgage practices of the worst M&A acquisition of all time - Countrywide Financial - sent the stock of BAC plunging. Now, it has become a daily thing and any incremental news barely cause a budget in the stock. One just needs to look at the surging Reps and Warranties claims against the bank (most recently in the latest Q3 earnings report) for improper mortgage conduct in the past to get a sense that very soon the firm's entire market cap will be less than the liability and litigation reserve it will need to establish against the avalanche of lawsuits we predicted back in October 2010. The litigation against the bank now is so large, that it will soon have to pull its TBTF get out of bankruptcy card just to avoid being sued to death in a 1000 legal paper cuts. This explains why the just announced latest lawsuit against BAC by the NY District Attorney, seeking $1 billion or so, for fraudulent loan-origination practices barely caused a stir in the stock.
Last month, hours after the announcement of QEternity, we said that in validation of the 'Flow' model taking over from the Fed's flawed 'Stock' model, the Fed will have no choice but to continue the long-end $85 billion in monetary flow addition to the market, if not economy (i.e. expand the QE program from $40bn per month to $85bn per month starting in January - in order to maintain the 'flow' post-Operation Twist). Last night, Goldman has officially agreed with us (as has Bloomberg's chief economist Joe Brusuelas). It appears that starting January 2013 Ben is really going to town. But don't expect this to be announced today. It will, as Goldman speculates, be disclosed at the Fed's December FOMC meeting. For now, two weeks ahead of the election, expect more "autopilot" from Bernanke as coming up with any surprises 'now' would be seen as beyond political.
While the infamous 'Gundlach' trade has done remarkably well since inception, our view on NatGas has become less vociferously bullish recently as the more constructive factors such as an under-appreciation of declining production and rising utility demand. While their remains upside potential to gas prices over the next 18 to 24 months, we tend to agree with Credit Suisse as they note five reasons why a near-term pause in pricing is likely. With unconventional supply more resilient than many had expected - covering the fall in conventional supply and absent an extremely cold winter (which NOAA is not expecting), a range-bound NatGas pricing market seems the new normal (for now).
By now everyone knows that as part of QEternity, Uncle Ben is currently monetizing $40 billion in MBS per month, a number which as we first forecast hours after its announcement and which everyone is now piling on to reaffirm, will rise to $85 billion in outright, unsterilized monetization beginning January 1, 2013 (as anything less would be seen as impllicit tightening in a market which now needs $85 billion in Fed Flow monthly simply not to collapse). This is fungible money which is going solely to benefit the banks, whose reserves with the Fed swell, and which proceeds can be used for virtually any purpose - from buying MBS (which they are doing) to 300x P/E stocks like AMZN - but not to be lent out to those desperately seeking loans? Why: one simple reason - the banks are already mired in legacy litigation from loans made during the last housing bubble (just see the hundreds of mortgage-related lawsuits Bank of Countrywide Lynch is a defendant in and you will get a sense of how bad it is) and the last thing they need is a repeat of that. And while the Fed has only one monetary easing pathway, which always goes through the banks, we wish to demonstrate to our readers what, in a thought experiment ignoring all the obvious practical considerations, the equivalent benefit to the general population would be if instead of being held by the banks and used to make the rich even richer, this money would bypass the banking syndicate and go straight to the US job seeker...
With Greece making headlines with extensions rumors (from the Greeks) and denials (from the Germans), we continue to hear of the resurgence in the Greek stock market. It must mean something after all - its up almost 90% in the last few months! The following two charts may give those who 'believe' a little pause for thought as the Athens Stock Index was down 91% from its 2007 highs before it rebounded and we remind those 'option' buyers that Eastman Kodak had fallen 93.5% from its highs before rebounding a remarkable 300% off the March 2009 lows, before giving up all of that into bankruptcy just a few short years later. Recency bias is a behavioral instinct that this market has become beholden to - but perhaps a step back might enable a little more perspective on just where we are.