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Market Sentiment And Overnight Summary

Below are some of the key events to have transpired in the overnight session. According to Bloomberg's TJ Marta, sentiment is broadly higher, with stocks, bond yields, FX higher, EU sovereign spreads tighter as markets focus on German unemployment, ebbing EU concerns, shrug off German retail sales, Greek debt.  Whereas German retail sales unexpectedly fell -1.4%M/m vs est. +0.8%, unemployment fell more than expected -34k vs est. -10k. Italy December unemployment climbed to 8.9%, highest since the data series began in Jan. 2004, from a revised 8.8% in November. Commodities mostly higher, led by WTI +1.5%, 1.0 std. devs. EU leaders agreed to accelerate rescue fund, deficit control treaty . Greek debt negotiations remain in flux with Greece reporting progress, Germany expressing frustration over Greece’s failure to carry out economic. Portugal 10-yr yields fell after earlier touching euro-era record; yields of AAA-rated Finland, Norway, Sweden and Germany higher even as Coelho Says Portugal’s Debt Is 'Perfectly Sustainable.' Treasuries decline for first time in five days; 5-yrs yields yesterday touched record-low 0.7157%. SNB Says Currency Reserves Declined to 257.5 Billion Francs. Foreign Investment in Spain Shows EU38.6 Bln Outflow in Jan-Nov. ECB’s Nowotny Says ‘Can’t Be Sure’ Greece Will Stay in Euro. Belgium Borrowing Costs Rise at 105-Day, 168-Day Bill Auction. Finally, according to KBC, Irish Consumer Confidence Up As ‘Armageddon’ Averted. So every day the world does not end consumer confidence should be higher. Brilliant.

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Frontrunning: January 31

  • Victory for Merkel Over Fiscal Treaty (FT)
  • Everyone wants a mediterranean colony: China's NDRC Delegation Visit Greece to Boost Economic Ties (Xinhua)
  • As Florida votes, Romney seems in driver's seat (Reuters)
  • Greece’s Papademos Seek On Debt Deal by End of Week (Reuters)
  • Banks Set to Double Crisis Loans From ECB (FT) - as Zero Hedge predicted two weeks ago
  • S&P: Doubling Sales Tax Won’t Help Japan Enough (Bloomberg)
  • Toshiba cuts outlook after Q3 profit tumbles (Reuters)
  • Blackrock’s Doll says Fed’s QE3 is Unlikely, In Contrast to Pimco’s Gross (Bloomberg)

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Super Bowl Sentiment - Inflation And The High-End Consumer

ConvergEx's annual analysis of Super Bowl economics shows that, when the time and place is right, prices can soar like a Hail Mary pass to clinch the playoffs.  Yes, the face value for tickets is unchanged in the last year - $800 to $1,200.  But the street price for a ticket to the big game will set you back at least $2,000, and the average ticket is running closer to $4,000.  The good news, sort of, is that there has been no inflation for the “Cheapest” seats since last year, when they were also two grand.  And that is despite a smaller stadium this time around (68,000 versus +80,000).  A signal about the stagnating confidence of the high end consumer?  Perhaps. Nic Colas goes to note that to get into Super Bowl #1 would have cost you all of $12.  That was in Los Angeles in 1967.  And the best seat in the house.  From there stated ticket prices went to $50 in 1984, $100 in 1988 and $500 in 2003.  Now, the prices printed on the ticket for the Indianapolis game this Sunday are between $800 and $1,200.  As the accompanying chart shows, this is an inflation rate of around 8,900% for the period, versus 687% for the Consumer Price Index. One thing we know – next year it won’t be a problem to set a new street price for the Super Bowl, regardless of whatever the economy may bring.  It is in New Orleans.

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European Bailout Infographic: Presenting The Truckloads Of Cash Needed To Rescue The Insolvent PIIGS

...No, literally truckloads. Our friends at demonocracy.info have been kind enough to put together an infographic that explains the European bailout in simple, visual terms, that even the most innocent of FTL truckers can grasp without much exertion, for the simple reason that it shows all the bailouts amounts in terms of trucks of cash. And here is the kicker: one would need a 13 lane highway, filled with trucks bumper to bumper, stretching for about 3 kilometers to represent the €2.91 trillion in total amounts owed by the PIIGS and their citizens (whether voluntarily or not... actually make that involuntarily) to  Europe's largest banks. What is most frightening is what is not shown: just how it is that the world's central banks are keeping all of these banks propped up. Because sooner or later all this money will be discovered to have been fatally misallocated. Then the real bailout cost will become all too evident, and just like in the US, it will be in the double digit trillions. Which means the metaphorical highway of trucks full of cash will stretch on for kilometers and kilometers and so on (or miles, for the naive US-based truckers). But since that day is in the future, there is no reason to worry about it.

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Guest Post: The Price of Growth

Growth. It's what every economist and politician wants. If we get 'back to growth', servicing debts both private and sovereign become much easier. And life will return to normal (for a few more years). There is growing evidence that a major US policy shift is underway to boost growth. Growth that will create millions of new jobs and raise real GDP. While that's welcome news to just about everyone, the story is much less appealing when one understands the cost at which such growth comes. Are we better off if a near-term recovery comes at the expense of our future security? The prudent among us would disagree.

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Diebold Leaks Election Results Early... Again

Yes, it has happened before, but since truth is timeless, we were not surprised to find that it has been "leaked" again, in this timeless clip from TheOnion which explains everything one needs to know about the upcoming "elections"

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Long-Dated VIX Still Priced For Depression Risk

Since the spike in VIX in October of last year, short-dated volatility (and correlation) has dropped significantly, but the vol term-structure has steepened, and long-dated volatility remains stubbornly high. Goldman Sachs updates their volatility debt cycle thesis today and so far we are following the typical cycle post-volatility-spike - realized vols drop, short-term implied vols drop, term structure steepens, long-term vols drop - leaving them focused on both the implications of the current low levels of short-term vol and the high-levels of long-term vol. In brief, short-term volatility reflects very closely the current macro environment (GDP growth, ISM, high-yield, and Goldman's models) but longer-dated volatility trades significantly worse. The volatility (variance swaps) market is expecting realized volatility to be very high over the next 5-10 years - the only time this has happened was during The Great Depression. Professionals remain anxiously aware that the global debt super-cycle has ended and that we face deleveraging and deflationary pressures for years to come, short-dated vol will continue to ebb and flow with each band-aid and risk flare but investors deep-down know that the 'big one' remains around the corner. Although markets are in a healthy state at the moment it would only take a relatively mild cross-wind to expose the problems again and vol markets reflect this despite what the mainstream media's view of the fear index tells us.

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Credit And Financials Underperform As S&P Holds 1300

US equity markets went sideways to higher after the European close on low volumes and minimal support from broad risk drivers in general (with SPX bouncing off 1300). HYG tracked ES (the e-mini S&P 500 futures contract) higher as it tried to get back to unchanged (during an afternoon of notably smaller average trade size until the close which suggests covering by bigger players). HY and IG credit markets were not as ebullient as stocks and into the close HYG sold off relatively well to catch back down with HY's weakness on the day. Treasuries, credit, FX, and commodities all closed near the middle of the day's range while ES managed to get back near its highs (with volumes down 15% from Friday and near the lowest of the year so far). Financials underperformed once again (as Tech was the only sector in the green by the close). Treasury yields helped support some of the rally in the afternoon in US equities as 30Y shifted from -11bps to -5bps by the close but overall Treasuries outperformed (stocks should be down more on a beta basis given bonds move). JPY was the outlier today, stronger vs USD by 0.46% from Friday while elsewhere in FX, the USD (+0.4% from Friday) lost some of its gains against the majors after the European close with EURUSD back above 1.31 by the close. Gold (with its pending death cross to match SPX's golden cross) just outperformed its commodity peers (with oil close behind) though they all lost ground as USD strengthened with Copper and Silver underperforming. VIX gained about 1 vol from Friday but leaked lower by around 1 vol from its opening peak above 20.

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Van Rompuy Barroso Sarkozy Live Press Conference - Webcast

Can't get enough of gravitationally-challenged presidents and Gollum wannabes? Then this webcast is for you. Oops, looks like no Sarko, just that D-grade actor Barroso. Oh well - both are completely irrelevant.

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Good Gendarme: Recently Downgraded France Opposes German Demands For Greek "Tutelage"

Whowouldathunk it - beggars can be choosers. The country which just slashed its economic outlook, and which depends on GermAAAn capital and goodwill to preserve its well-being in the Eurozone, has just decided to pull a good gendarme to Germany's bad [insert the blank] and has voiced its opposition to German demands stripping Greece of its fiscal sovereignty.


Nice try Sarko: somehow we fail to see how FraAAnce's opinion is even remotely relevant in future European decision making at this point. But an admirable attempt by the future ex-president to go for the solidarity bonus points.

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Commerzbank CEO Says Greece Should Exit Eurozone

As if Merkel did not make it all too clear over the weekend that Germany no longer wishes Greece to be part of the Eurozone, and that the ball is now in Athens' court to accept what is a glaringly unfeasible demand, i.e., to hand over fiscal sovereignty over to "Europe" with Merkel having the cover of saying it did everything in its power to keep Greece in the union, here comes Commerzbank's CEO Mueller to pick up where Merkel left off:


Presumably this means that German banks have sold off all their Greek bond exposure, and believe that the Eurozone would be better off without Greece in it. However, that Commerzbank, or one of the most insolvent banks in Europe, and only in line with Dexia, is confident that it can withstand the contagtion that would follow, only makes us even more skeptical that a Greek default and Eurozone departure will be contained, and in all likelihood will have scary implications for all European banks, not only German ones. Just ask DB's Ackermann...

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ESM, EFSF, Or EB. Will Any Of It Work?

It appears that the market is cheering the move that the ESM will be implemented sooner than originally expected. That would be good if the ESM was materially different than the EFSF or if it was being done for some reason other than that the EFSF has been a total failure. Imagine the applause when the EU decides to transfer the responsibility from the ESM to the EB (Eastern Bunny). The EB is as likely to solve anything as the ESM is. For clarity we present (adn dismiss) four fallacies of the ESM.

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San Francisco Fed Admits Bernanke Powerless To Fix Unemployment Problem

That the fine economists at the San Fran Fed are known to spend good taxpayer money in order to solve such challenging white paper conundrums as whether water is wet, or whether a pound of air is heavier than a pound of lead (see here and here) has long been known. Furthermore, since the fine economists at said central planning establishment happen to, well, be economists, they without fail frame each problem in such a goal-seeked way that only allows for one explanation: typically the one that economics textbooks would prescribe as having been the explanation to begin with. Today, is in some ways a departure from the default assumptions. In a paper titled "Why is Unemployment Duration so Long", a question which simply requires a brief jog outside of one's ivory tower to obtain the answer, Rob Valleta and Katherin Kuang, manage to actually surprise us. And while we will suggest readers read the full paper attached below at their leisure, we cut straight to the conclusions, which has some troubling observations. Namely, they find that "the labor market has changed in ways that prevent the cyclical bounceback in the labor market that followed past recessions...  In addition, anecdotal evidence suggests that recent employer reluctance to hire reflects an unusual degree of uncertainty about future growth in product demand and labor costs."Oddly enough, this is actually a correct assessment: the mean reversion "model" no longer works as the entire system has now broken, and since the administration changes rules from one day to the next, companies are not only not investing in their future and spending capital for expansion, and hoarding cash, but have no interest in hiring: an observation that previously led to a surge in profit margins, yet one which as we pointed out over the weekend, has now peaked, and margins have begun rolling over, even as the rate of layoffs continues to be at abnormally high levels, meaning all the fat has now been cut out of the system. Yet it is the following conclusive statement that is most troubling: "These special factors are not readily addressed through conventional monetary or fiscal policies." And that is the proverbial "changeover" as the Fed has just acknowledged that both it, and Congress, are completely powerless at fixing the unemployment situation. In which case is it fair to finally demand that the Fed merely focus on just one mandate - that of controlling inflation, and leave the jobs question to the market, instead of making it worse with constant central planning tinkering which only makes it worse by the day?

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