What a year 2012 has been! The mainstream media continues to tell us what a “great job” the Obama administration and the Federal Reserve are doing of managing the economy, but meanwhile things just continue to get even worse for the poor and the middle class. Right now we are living in a bubble of debt-fueled false prosperity that allows us to continue to consume far more wealth than we produce, but when that bubble bursts we are going to experience the most painful economic “adjustment” that America has ever gone through. We need to be able to explain to our fellow Americans what is coming, why it is coming and what needs to be done. Hopefully the crazy economic numbers that we have included in this article will be shocking enough to wake some people up.
... and all through the collocated server house, GETCO algos were stirring, hoping (as this is the only "strategy" left) that maybe, just maybe, Obama can pull a unicorn out of his skittles-dispensing hat. He won't, and most likely we will get one last does of stern fingerpointing, harsh language and accusative condemnation of those wascaly wepublicans. But find out for yourselves in 15 short minutes, when the market may be closed, but futures will still be open, although at least subject to the limit down rule. Of course, if the news was good, it would have come before 4 pm...
After last night's craziness, equity markets anchored off the synthetics and the synthetics anchored to VWAP. We clung there at VWAP all day long in S&P 500 futures with some rumor-driven angst into the close to try and get some levitation. Much was made of VIX's decline from its opening highs, however, a look back at the week and it is obvious that this was hedgers unwinding their positions (leaving VIX still notably more worried than stocks). Equities in general collapsed down to where yesterday's risk-assets had languished and cross-asset-class correlations were very high today (which makes sense as every algo in the market was working over time to hold us together after the flash crash overnight). The USD ends the week unchanged (with AUD 1.5% weaker and SEK 1.9% stronger) and early winners and losers in commodities reverted (oil down and silver/gold up today) leaving Silver -7% on the week still! Treasury yields ended only 7bps higher on the week (well off the 15bps on Tuesday) as Financials remain the week's winners (+2.5%) and Staples the losers (-2.25%).
This manipulated market has become so predictable a blind, retarded monkey with a dartboard should have made enough money by now to retire 3 lifetimes over.
From 9:39 am:
@specsitinvestor we may well close >1% when the Fiscal Cliff deal rumor hits at 3:30pm
— zerohedge (@zerohedge) December 21, 2012
Sure enough, at 3:19 pm:
- White House Said to Consider Smaller Fiscal Cliff Deal: Politico
And cue melt up.
Everyone has a catalyst. A breaking point where we finally say, "enough is enough" and finally begin to take action. It seems quite obvious now. There can be no discussion. And at some point, a reasonable human being has to reflect on the society that has developed around him and wonder, "Do I have anything in common with these people anymore...? Do we share any core values? Or do we simply share the same passport cover?" It's certainly a question worth asking... ideally before you reach your breaking point.
There are a plethora of reasons underpinning the fact that manufacturing jobs are not coming back to the USA. Perhaps the simplest is purely economic. As McKinsey notes in a recent report, manufacturings' role in job creation shifts over time as manufacturing's share of output falls and as companies invest in technologies and process improvements that raise productivity. A critical finding is that as manufacturing's share of national output falls, so does its share of employment - following the inverted 'U' curve below. Manufacturing job losses in advanced economies have been concentrated in labor-intensive and highly tradable (read globalizable) industries such as apparel and electronics assembly. Thanks to the increased productivity and a 'high' credit-enabled standard-of-living, the US has simply priced itself out of the global manufacturing business (and so is China as its GDP per capita rises). Unless Americans are willing to put the twinkie (and iPad) down, those jobs will continue to bleed overseas (to India based on the chart below) building the ever-more self-fulfilling vicious circle of a nation dependent on state-aid to survive as only the 'unlucky' few remain employed.
The rumors have been flying around all morning, but now it's news...
- ITALY PRIME MINISTER MONTI RESIGNS, PRESIDENT SAYS
Italian credit spreads leaked wider all morning and EURUSD lower though the correlation to losing a technocrat is perhaps a stretch. And so the great "Mark-to-Monti" Goldman rotation (as described previously) is complete, with Goldman losing a technocratic scribe, who is no longer needed thanks to yet another Goldmanite now in charge of the ECB, but far more importantly, Goldman has now gained control over that most prized of central planner jewels: the Bank of England.
26-year-old Hu Bin is China's most popular online market commentator - just four years after starting his blog. As Bloomberg BusinessWeek notes, his success started when Premier Wen Jiabao announced a 4 trillion renminbi rescue plan and as 'Commander in Chief of the Stock Market Army' Hu says "I knew I just needed to be clever and use this chance of high liquidity in the market to make myself famous." The brash, eccentric, and outspoken blogger is among the Top 10 most influential people on the Chinese stock market (though under his alias 'Yerongtian' - though preferring the nickname 'Batman') and notes that "any eccentric behavior would attract people's attention. If you understood this vital point, you could control people's minds." Hu says he is not a financial rabble-rouser adding that "the stock market in the US is managed by regulations; the Chinese market is managed by humans. The 72 million 'retail' Chinese investors aren't as mature as American investors, and I write to meet their immediate needs." While recognizing the irresistible pull of stocks, he understands he's giving advice to people he knows probably shouldn’t be in the market but are going to invest anyway. What's Chinese for BooYaa?
Facing reality is positive. That's the upside to the fiscal cliff. The last decade's fantasy that we could borrow our way to prosperity while lowering taxes on upper-income earners (because it's so cheap to borrow trillions at near-zero interest rates) is finally running into reality-based resistance.
First gun sales soared, then Wal-Mart ran out of guns, then parents, stunned by the popular response in the aftermath of the Newtown mass murder which saw the White House threaten to curb the Second Amendment and lead to an even more unprecedented scramble for guns and ammo, and seeing nothing but confusion (but lots of bickering meant to extract nothing but political brownie points) out of the government instead of any hope of actual protection, decided it was time for some vigilante protection. The end result: sales of bulletproof backpacks have soared, with sales exploding as much as 500% since Friday. And since the white line from a defensive to an offensive posture is very thin, it is likely only a matter of time before we get the first media report of a 6 year old armed with a 44 caliber during recess.
While Italian and Spanish sovereign bonds weakened notably today, the equity markets across Europe decided that the limit-down move in US futures was a storm in a teacup and ignored it. EURUSD has broken its inexorable 10-day linear ramp leaving the USD almost perfectly unchanged on the week. Italy and Spain equity indices are up 2.6% and 3% respectively while Italian and Spanish bond spreads are around 16bps tighter. Rather like what we witnessed this week in the US, Europe's VIX exploded today (biggest jump since July) as protection was sought in a hurry but the underlying indices did not drop as (just like over here) they are simply too illiquid to cope with the kind of selling that is desired. This leads to the game-theoretical first-mover dilemma - and the preference was to hedge via bonds, FX, and options as Europe closed - because think of the optics if Spanish stocks were to fall? Spot The Odd Market Out!
Steve Jobs' EUR150mm yacht has been confiscated by a court in Amsterdam following Jobs' heirs decision not to pay the designer of the boat. As Holland's Nu.nl reports, the famous designer Philippe Starck had an 'agreement' with Steve Jobs that he would receive 6% of the price (or EUR9mm) of creating the yacht as his payment for designing the epic 80-meter, 27-iMac-controlled behemoth. Unfortunately, the 'agreement' was not on paper as the two men were 'friends' and so the heirs to Steve Jobs fortune have decided that the EUR6mm that Starck has received is quite enough. The yacht remains moored in the Port of Amsterdam under bailiff control. Must be a tough life eh?