Moar 'm' words from the modest boring of backward-looking release - The Beige Book. Unable to say the word slow, it seems 'modest', 'mild', and 'moderate' are the adjective of choice. But there is a bright spot... FED: BEIGE BOOK BASED ON INFORMATION GOTTEN ON OR BEFORE MAY 24; FED SAYS GROWTH WAS `MODEST TO MODERATE' ACROSS MOST OF U.S.; FED: HOUSING INCREASED AT `MODERATE TO STRONG PACE' ACROSS U.S. and we know what is happening there now. So we assume this is the 'growth' that brings 'teper' chatter - hhmm.
In a considerably worse 'crash' than the Japanese stock market, a building has collapsed in Philadelphia with 12 injured and 2 still trapped in the rubble. Just as suddenly as the market went from euphoric stability to volatile entropic failure, perhaps a massive infrastructure spending project (Quantitative constructing?) is required in a country in which major urban building can be perfectly stable one moment and a pile of rubble the next...
Back on Monday, following the huge miss in the Manufacturing ISM, in collaboration with Nanex, we exposed yet another instance of blatant headline data frontrunning in "15 Milliseconds Of HFT Fame: Watch Today's Early Leak Of The ISM Print" where we showed aggressive trading amounting to tens of millions in notional contracts ahead of the 10am release of the key economic indicator. We assumed that just like every other lament about a market that is front-run by those "who have the means", manipulated (by the Fed of course - remember when that was just a conspiracy theory: good times) and simply broken, it would disappear in the ether forever. After all: why bring attention to facts when hopium is sufficient for the E-Trade baby to retire rich and famous before it has hit 2. We were delighted to learn that CNBC's Eamon Javers picked up the torch and actually did some further investigating, which in turn led to an actual admission out of Reuters that it "inadvertently" sent out the data to "a select group of high frequency traders, many of whom immediately traded on the information before it was available to the wider market, CNBC has learned." Inadvertently? The humor just never stops.
Fact: manufacturing has lost jobs two months in a row, and which as the BLS reported today saw hourly compensation collapse by 6.9% in Q1 - the most ever. As for the Taper... look at the chart below.
The topic of the IMF's idiocy - unquestioned here following years and years and years of absolutely horrific forecasts, not to mention charts like this one courtesy of the Troika, of whom the IMF is a proud member has been widely covered in the past. However, while in the past we have attributed to stupidity all the faults of the Angela Mozilla Christine Lagarde-headed organization, we never had the factual backing to also invoke malice, lies and manipulation. Now, we can.
Residential housing is the single largest "tangible" US real estate asset, worth roughly $18 trillion (but well below the total financial assets in circulation in the US).Housing inventory as of May was 133.2 million units, of which owner occupied is 78.9 million, renter occupied was 41.7 million, but most troubling: 12.6 million was Vacant. Some shortage... It is this mismatch between 11.1 million in negative equity "owner occupied" units and 12.6 million vacant units that all those who peddle the rent-to-own dream are focused on as America becomes increasingly a society of rents. It also means that the millions in soon to be formerly owner-occupied homes have to stay on bank books and not enter the market in other to generate the illusion of scarcity or else the myth that there is a housing shortage will be blown right out of the water.
Last night's over-promised and under-delivered 'third arrow' from Abe appears to have solidified market opinions about the chances of Abe slaying his deflation-monster nemesis. UBS' CIO Alex Friedman fears that Japan may face a fearsome stagflation - where accelerating inflation in asset prices is not met by higher growth rates - a scenario he calls "Abegeddon." In an "Abegeddon" scenario, Friedman said "investors may grow increasingly concerned about the sustainability of Japanese debt levels that could lead to a 'stampede' out of government bonds." With Nikkei 225 futures having faded their European morning bounce and pressuring back towards the 20% 'bear market' correction levels once again, it seems the 'stampede' is out of growth-expectation-driven equities as JGBs are bid for now. That bid (no matter how hard the BoJ tries) is unlikely to last if the doubt grows as Japan's debt-to-GDP would rise above 300% (from 226% currently) and the 10Y JGB yield could approach 5%!
It's a central bank world, and we are all just suckerfish attached to the Great Central Planning Whites, hoping for little scraps to trickle down as trillions (Yen-denominated) in bonds are monetized every day.
With the Nikkei 225 trading back under 13,000 once again, the countdown to the 12,815 level is back on and the pronouncement of the Japanese bear market. Bad was not good this morning acoss risk assets in general as the BTFDers were unsure if their man in the big house is really gonna keep pumping. Treasuries are modestly bid (2-3bps) as US stocks crack back below recent lows near a one-month low in the S&P 500. Carry drivers are getting pummeled as AUD is sold and JPY is bid. European markets are bleeding (equities worse than sovereign bonds for now).
Non-Manufacturing ISM Comes In Line, Factory Orders Miss: Inventory To Sales Highest Since October 2009Submitted by Tyler Durden on 06/05/2013 - 10:14
Despite market bull hopes for a collapse in the non-manufacturing ISM (remember: bad news is good news for momentum chasers and the Mandarins of Marriner Eccles) and a repeat of the sub-50 Manufacturing ISM fiasco, moments ago the Institute for Supply Management released the June Non-manufacturing ISM which printed at 53.7, just above expectations of a 53.5 print, and above last month's disappointing 53.1. The New Orders index rose from 54.5 to 56.0 and the Business Activity also rising from 55.0 to 56.5, offset by a drop in inventories from 56.0 to 51.5, a collapse in Imports from 58.5 to 49.5 and, troublingly, an ADP validating decling in the employment index from 52.0 to just above contraction at 50.1. Perhaps the most informative respondent comment was the following: "Healthcare reform and sequestration are having a strong negative impact on business." (Health Care & Social Assistance). Oh well, a mixed report that is neither overly bullish or bearish, so those hoping for bad news will have to look at the Factory Orders release which posted its second miss in a row, printing at 1.0% on expectations of a 1.5% rise.
France and Italy are fighting against ambitious plans by the ECB to basically 'externally audit' 140 banks across the EU representing 80% of Europe's banking assets. The implementation of the project (by the head of financial stability at the central bank) appears to have two main drivers. First, to understand which banks' balance sheets are inhibiting lending (and why); and second, to ensure there is clarification on taxpayer-funded bailouts versus shareholders and depositors taking losses first. As Zeit reports, it seems the ECB appears to be questioning the reliability of the banks own figures.
This morning's 11.5% week-over-week plunge in mortgage applications is the fourth week of fading demand in a row as it appears the bloom is very much off the rose of the second-coming of the housing bubble. This makes it the worst plunge in mortgage applications since June 2009 and the lowest level of activity since December 2011. Wondering how this is possible? We explained in detail here but this collapse in mortgage demand fits perfectly with Mark Hanson's insights that a number of "large private mortgage bankers had mass layoffs last Friday to the tune of 25% to 50% of their operations staff." This all feels very deja vu all over again.
Hourly Compensation Crashes Most Ever, Labor Costs Drops By Most In 4 Years, Manufacturing Compensation Plummets By 7%Submitted by Tyler Durden on 06/05/2013 - 08:51
So much for the thesis of declining labor slack and rising labor leverage. Moments ago the BLS reported its Q1 labor costs which poured cold water over all recent hypotheses that the US worker's plight is improving. It isn't: productivity increased by 0.5% in Q1 in ling with expectations of 0.6% (on what is not exactly clear - everyone on their iPhones?) but it was labor costs which plunged -4.3% on expectations of a +0.5% increase driven by a 3.8% collapse in hourly compensation that was the stunner. This was the biggest labor cost drop in four years and the biggest collapse in hourly compensation in well, ever and confirms our observations from the last NFP report that quantity gains in jobs continue to be offset by quality declines in actual worker pay. As a reminder we were scratching our heads following the soaring Q4 labor cost and declining productivity data which made no sense in the general context of deteriorating labor conditions. Following this print, it all falls back into place and confirms the Q4 data was nothing but an outlier. Also,this may be the end of the core thesis behind David Rosenberg's recently developed reflationary argument.