Never in a million years did we think we’d ever use an article by Andrew Ross Sorkin as the basis of a blog post, but here we are. While probably entirely unintentional, his article serves to further solidify as accurate the prevailing notion across America that former head of the New York Federal Reserve and Obama’s first Treasury Secretary, Timothy Geithner, is nothing more than an addled, crony, bureaucratic banker cabin boy. Simply put, "Geithner is so bad, he actually makes Larry Summers look good."
For weeks, months, and even years now, 330RAMP CAPITAL (the ironic phrase used to indicate the oh-so-visible hand of 'someone' that decides te last 30 minutes of the US trading day is the perfect liquidity time to slam VIX lower and panic-buy stocks). However, as Gavekal notes, recently we have seen an increasing number of weak-ish stock market closes.
Atlanta, Georgia suffers the greate income inequality of any city in the US - closely followed by New Orleans. According to Bloomberg, which ranked 300 U.S. cities with populations of at least 100,000 based on their level of income inequality and identified the 50 with the greatest inequality. What is stunning is that while top-down many are focused on the widening gap overall, in these 2 cities alone, over one-quarter are in poverty (earn less than $4,020), while 60% are in the nation's top quintile for household income. Interestingly, the median income does not correlate well with the inequality.
Surprise: Putin punked everyone again. But it's all good because the fake de-escalation allowed the rigged Dow Jones to close at a new all time high inspiring Americans full of "confidence" so they can go ahead and spend money they don't have to boost US Q2 GDP: after all it has a ways to go to hit Goldman's 3.9% quarterly target.
As another week passes by the markets have made no real movement in months. News flow, outside of Yellen's testimony, was also rather slow as first quarter's earnings season begins to come to a close. However, there were a few articles that we read this week that we thought you might find interesting as well... from the dangers of hidden leverage (in the re-burgeoning CDO markets) to the history if bubbles (and their lack of logic) and the demise of the US small business.
Every day this week saw early weakness (the dump) succumb to a rampathon (pump) but as those dump-and-pumps progressed the gap between small-cap/high-beta and large-cap/blue-chip widened and widened. The Russell (and the S&P) had its worst week in a month but the Dow (and just Trannies) managed to close the week green and new record highs. Homebuilders were the worst sector on the week (-2.5%) and Staples best with a modest gain. Away from stocks, the USD surged 0.55% on the week (its biggest jump in 7 weeks) led by EUR weakness (250 pips on Draghi promise). The biggest news was in bond-land where the 30Y yields exploded post-Yellen (+10bps on the week) and the short-end rallied (-4bps) for the biggest steepening in 20 months. Gold closed the week at its lowest in 3 months. Much was made of the shift lower in VIX today (back under 13) - especially ahead of the Donetsk referendum - but given the market's relative underperformance it would appear hedges were lifted and positions derisked simultaneously.
By now everyone knows that a $17 trillion economy has no greater nemesis than snow... in the winter... which in the first quarter of 2014 managed to lob off some $50 billion in growth from the world's largest economy, and instead of allowing the US to expand at its priced to ultraperfection 3.0% rate, resulted in a screeching halt in growth. But did you know that the one thing that the economy of the centrally-planned world can't stand more than cold is... heat. That is what Italians found out today when they read daily publication Ansa which "explained" that March industrial production declined by 0.5% because of, drum roll, "earlier than expected warm weather."
By far the scariest harbinger revealed by today's JOLTS data is seen when one looks at the openings only for manufacturing jobs, which have now declined for 4 consecutive months: the longest negative stretch in the so-called recovery. The chart clearly shows that the last time we had an identical lack of improvement in manufacturing jobs, the US economy entered a recession, or as we like to call it, a depression, just that month!
It is only one word, but it has been repeated so many times by FOMC members in the past year or so it has taken on the imprimatur of officialdom vernacular. Whenever speaking of bubbles, these policymakers inevitably include the word, “obvious.” Long is the list of internal literature that purports to place bubbles in the same category with the Supreme Court’s definition of pornography – we know it only when we see it. In that respect, “obvious” is the perfect qualifier that situates even the brightest of the PhD’s in the same herd as the little guy investor. It would be hard to blame them in disaster if that were actually the case since “everyone” else missed it too. The “good” news is that we will know for sure, including Yellen and her FOMC conspirators, at some point once it all becomes perfectly clear in hindsight. What a way to craft scarily intrusive policy!
The long-bond yield is now up 10bps on the week (and 5Y -4bps) leaving the yield curve steepening by its most in 20 months. Thanks to a handy - we don't need no stinking protection - VIX slam, US equity markets have recovered to highs of the day as the buying panic of yesterday is replayed once again.
In perhaps the most ironic telepromptering ever, President Obama is visiting a WalMart in the heart of the West Coast money bubble today - after attending a number of multi-thousand-dollar-per-plate fund-raisers in the last 24 hours - and intends to discuss minimum wage in Mountain View today (among the Maseratis and Lambos). As Walmart Pres & CEO Bill Simon notes, its the first time a sitting US President has visited a Walmart.
While - for now - Sunday's referendum for Donetsk remains un-postponed despite Putin's diplomatic call for a delay, the Europeans and Ukrainians are extremely displeased with his visit to Crimea today:
EU SAYS REGRETS PUTIN ATTENDED CRIMEA PARADE;
EU SAYS HE SHOULD NOT HAVE USED VICTORY DAY TO SHOWCASE ANNEXATION OF CRIMEA; and
Ukraine considers this step to be a blatant disrespect by the Russian side
The atmosphere in the nation is growing dark - as one source in Mariupol noted, "Electricity out in parts, barricades being pulled up. Feels like a country on the brink of civil war."
It is not coincidental that the middle class and small business are both in decline. Entrepreneurial enterprise and small business have long been stepping stones to middle class incomes and generational wealth, i.e. wealth that is passed down to future generations rather than consumed. As the headwinds to entrepreneurial enterprise and small business rise, the pathway to middle class prosperity narrows.