The uncomfortable effects of government actions are being felt everywhere. Obamacare concerns are, anecdotally, delaying hiring, causing firms to change benefits for the people, and increasing taxes on the great majority. On the other hand, in the context of the "sequester", which is merely a slowdown in the breakneck rate of government spending, anyone who has traveled by plane in the last month knows the full court press efforts under way to ensure the American public knows just how 'devastating' the sequester cuts are - with delays rising exponentially with every dollar removed from the FAA budget. But there is a group on 'Americans' who are not feeling the pain of Obamacare or Airport delays. This group of people remains comfortably unaware of the reality that is being passed on the rest of the US citizenry. As Politico reports, Congressional leaders in both parties are engaged in high-level, confidential talks about exempting lawmakers and Capitol Hill aides from the insurance exchanges they are mandated to join as part of Obamacare; and as the Washington Times reports, the chief of the FAA told Congress today that Washington-area airports will largely escape the effects of the air traffic controller furloughs.
The amateur detective sleuths on 4Chan, Reddit and other social sites were so eager to demonstrate their investigative prowess in the information vacuum days following the Boston Bombing, they managed to identify virtually everyone who appeared even slightly tanned and/or had a backpack as a potential suspect. Sadly, the game, as well-meaning as it may have been, just turned lethal for one of the people who were falsely identified, as NBC just confirmed that Sunil Tripathi, 22, a former student at Brown University has been found dead in the Providence River.
In a mere 3 seconds, Qualys, a $350mm market cap company providing IT security solutions, was rendered worthless by a rogue algorithm with an apparent sense of humor. The stock opened around $11 but at 0935ET, Johnny 5 decided it was time for the take-down and almost instantaneously the stock, QLYS, crashed to $0. Seven seconds later, all was well in the world of IT security solutions once again as $11 was recovered. Of course, in the meantime, every stop was triggered and any belief in the stability of the market was destroyed - but hey, the exchanges got their data fees.
With an increasing number of market participants expecting a rate cut from the ECB at next week's May meeting, Goldman Sachs is piling on in a considerably less exuberant manner than the crash lower in peripheral bond yields would suggest. EURUSD reversed its gains very rapidly as Goldman slashed its growth forecast from -0.5% to -0.7%, expects a 25bps cut next week, but notes that this is "largely cosmetic" with few real implications for the economy. Critically, they also remind us that Draghi and his fellow ECB'ers have been increasingly stressing the limits of what the ECB can do - making it clear that it is local governments that must create conditions for the recapitalization of their banks. The point is, Goldman, like us, recognizes this is an insolvency (capital) issue not a liquidity issue, and it seems the ECB also knows that now. European stocks faded modestly on this as EUR sold off and peripheral bond spreads have ben leaking wider since yesterday as perhaps the reality is far less risk-supportive (via bond purchases?) than many had hoped.
In the financial world at present the markets are fueled by the liquidity of the central banks. Not only is nothing else of importance but good news becomes the joyful noise of some divinity, bad news is elevated to good news and horrible news brings ecstasy as it will enlarge the contributions of Mr. Bernanke and Mr. Draghi. We live in a world where everything is ignored but the time will come when this ignorance will be shattered. We will pay the price for our stupidity because there is always a price to be paid. Mr. Bernanke and Mr. Draghi have been the Saviors but the church has been built on thin air and the weight of the building is increasing and increasing at an alarming rate. This kind of normal is unsustainable. The lessons of the past are being ignored once again but I caution you to not forget what you have learned.
After recovering 50% of its record plunge last night, gold continues to rise this morning, topping $1450. Silver is even more exuberant this morning testing up to post-crash-low highs around $23.90. What is more interesting is that for three days in a row, instead of the seemingly ubiquitous morning smackdown of precious metals, we have seen a sudden desperate demand for silver and gold in the US morning.
In yet another worse-than-expected macro data point, Spain has just breached the 27% unemployment level - the highest since at least 1976, when data began following dictator Francisco Franco's death. At 27.2% this is already higher than the IMF's year-end estimate of 27% suggesting growth estimates are already overly optimistic. What is more concerning is the rate of increase in the joblessness is rising once again. The 1.1 percentage point rise is the largest in a year and 177,700 more households now have no actively employed members than a year ago. The greatest fear though, for European leaders and the Spanish people themselves, is the surge in youth unemployment. As we have noted a number of times in the past, the possibility of social unrest is exaggerated significantly by this number and at an incredulous 57.2% of under-25s out of work, Spain is closing in on Greece, according to official data, for the worst youth unemployment situation in Europe.
Any hopes that the S&P would hit a new all time high on horrible initial claims data may have been dashed following a report that initial claims for unemployment insurance dropped from an upward revised 355K (was 352K) to 339K, better than the expected 350K, and down to a nearly fresh five year low. It was unclear immediately following the report which states were estimated if any: as a reminder last week the DOL announced that 2 states had their data estimated. Continuing claims dropped from an upward revised 3093K to 3000K, the lowest in 5 years. Of course, with millions of people now prematurely out of the labor participation rate, what if any data the initial claims report provides these days, is very much unclear.
"The late Margaret Thatcher had a strong view about consensus. She called it: “The process of abandoning all beliefs, principles, values, and policies in search of something in which no one believes, but to which no one objects.” The same applies to most market forecasts. With some rare exceptions (like our commodity analysts? recent prescient call for a slump in the gold price), analysts don?t like to stand out from the crowd. It is dangerous and career-challenging. In that vein, we repeat our key forecasts of the S&P Composite to bottom around 450, accompanied by sub-1% US 10y yields and gold above $10,000."
- UK economy shows 0.3% growth (FT)
- Texas University Fund Sold $375 Million in Gold Bars (BBG)
- Spain Jobless Rate Breaches 27% on Recession Woes (BBG)
- Letta calls for easing of austerity policies (FT)
- Italy Led by Letta Brings Berlusconi Back as Winner (BBG)
- Fed Debate Moves From Tapering to Extending Bond Buying (BBG)
- South Korea wants talks with North on shuttered industrial zone (Reuters)
- Republicans advance bill to prepare for debt ceiling fight (Reuters)
- Republicans claim White House failed to warn on severity of cuts (FT)
- Xi meets former US heavyweights (China Daily)
- Next BoE chief Carney says clear framework key to policy success (Reuters)
- Chinese roll out red carpet for Hollande (FT)
A peculiar trading session, in which the usual overnight futures levitation has not been led by the BOJ-inspired USDJPY rise (even as the Nikkei225 rose another 0.6% more than offset by the Shanghai Composite drop of 0.86%), which actually has slid all session briefly dipping under 99 moments ago, but by the EURUSD, which saw a bout of buying around 5 am Eastern, just after news hit that the UK would avoid a triple dip recession with Q1 GDP rising 0.3% versus expectations of a 0.1% rise, up from a -0.3% in Q4 (more in Goldman note below). Since the news that the BOE will likely delay engaging in more QE (just in time for the arrival of Carney) is hardly EUR positive we look at the other news hitting around that time, such as Finland saying that the euro can survive in Cyprus exits the Eurozone, and that Merkel has rejected standardized bank guarantees for the foreseeable future, and we are left scratching our heads what is the reason for the brief burst in the Euro.
With its biggest 8-day rally in 20 months, Gold - having jumped another 1% this evening - has just breached $1445 and retraced half of the record plunge from April 12th. It would appear that the record physical demand that we are seeing in every corner of the globe is indeed leaking back into the actual price of gold.