• Sprott Money
    03/27/2015 - 04:54
    At first glance, the title to this commentary seems facile, especially to those readers in higher income brackets. The reality, however, is that “investing in food” is a risk-free means of generating...

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The US Has Finally Done It: Mexican Immigrants Become Emigrants

You know its bad when...the net flow of Mexicans into the US has fallen so much that there is a high probability that it is now in reverse ending around forty years of inward migration. The Pew Hispanic Center notes that the standstill - after more than 12 million current immigrants have entered the US - more than half of whom are illegal - appears to be the result of many factors including a weakened US job and construction market, tougher border enforcement, a rise in deportations, growing dangers associated with border crossing, a long-term decline in Mexico's birth rate, and changing (read perhaps more opportunistic) economic conditions in Mexico (especially if you work at WalMex). This sharp downward trend in net migration has led to the first significant decrease in at least two decades in the number of unauthorized Mexican immigrants living in the U.S. - to 6.1 million in 2011, down from a peak of nearly 7 million in 2007. In the five years from 2005 to 2010, about 1.4m Mexicans immigrated to the US – exactly the same number of Mexican immigrants and their US-born children who quit the US and moved back or were deported to Mexico. By contrast, in the previous five years to 2000 some 3m Mexicans came to the US and fewer than 700,000 left it. It will be interesting to see the spin that the Obama and Romney camps put on this hot-button topic as the 'Dream Act' turns into a nightmare and hardline anti-illegal immigration stances become, well, less relevant as Mexicans become Mexican'ts.



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Economic Data Dump Round Up

Quite a data dump took place at 10 am. Here are the highlights:



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It's The FX Repatriation, Stupid

Two weeks ago we were the first to explain that the mysterious Euro levitation observed, as newsflow out of Europe had just turned very ugly, was due solely to another iteration of a very disturbing phenomenon: EUR repatriation, as domestic banks were forced to shore up capital ahead of what they perceived as major liquidity needs such as bond auctions, and the other usual fare - insolvent banks, deposit outflow replacement, etc. As a reminder, the last time such aggressive repatriation was observed was back in October, just before the Fed was forced to ease the terms of its FX swaps, the ECB was forced to announced the LTROs and China was forced to announce an interest rate hike - in other words, the central planner were in bailout mode. Today, the first to address directly our "explanation" is Citi and specifically Stephen Englander, who notes the repatriation is likely a key driver to such inexplicable moves in the EURUSD. Of course, since Englander understands all too well the true implication of such a move (very, very negative as it means liquidity is once again becoming non-existent), he tries to mitigate it: "we find that in the recent past the repatriation theory has some support but that foreign portfolio flows are probably the dominant EUR driver": alas, that is what he said last time too. And it ended up being the other way around, in the process almost resulting in Europe's getting destroyed. Hopefully this time it is different.



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Case Shiller Misses Expectations, Unadjusted Home Prices Lowest In A Decade

The February Case Shiller number is out and represents the latest high frequency economic miss, with the 20 City Seasonally Adjusted number printing up 0.15% on expectations of 0.20%. The good news, of course, is that this is the first improvement in the Seasonally Adjusted Top 20 MSA Series since April 2011. The bad news is that this was all warm weather driven, and courtesy of seasonal adjustments: unadjusted the February data declined once again, this time by 0.8%, the 6th consecutive decline in a row, and the lowest number in a decade. Furthermore, the data would be uglier if it were not for prior period downward revisions in what seems to be a page right out of the BLS propaganda playbook. Needless to say, since this data is two months delayed, as many will recall in February the market was soaring on hopes that this time, just once, the "recovery" will be self-sustaining. Then the LTRO aftereffects fizzled, and everything went to hell again. Finally putting it all into perspective, the February data puts the Top 20 City data back on par with price levels last seen in early 2003. But hey - at least we have a very brief and transitory seasonally adjusted upswing.



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Apple Angst As Expectations Remain Extreme

UPDATE: Apple -2.4% at lows of yesterday now

Apple is down 1.5% pre-market and comfortably back below its 50DMA on a top-line (and notably activations) miss from AT&T among other anxiety-inducing sentiment this morning. Perhaps what is really providing all the performance anxiety is the extreme expectations that are piled upon this greater-than-bellwether stock that has become the market. As Bloomberg's chart-of-the-day notes, Apple needs to surpass estimates by a wider margin than most of its peers in the S&P 500 in order to satisfy investors - if history is any guide. On an adjusted per-share basis, profits have beaten estimates by about 19% on average over the past seven years - a true under-promise over-deliver strategy. As Colin Gillis of BGC Partners notes, "Apple will need to smash records to keep momentum" as surpassing the $9.98/share by 20% is an impressive feat indeed as they point out that seven of the nine times Apple's shares have fallen the day after earnings has been when earnings beat by less than 20%. Performance anxiety indeed.



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Russia And Mexico Both Buy Nearly $1 Billion Worth of Gold in March

While gold demand from the western investors and store of wealth buyers has fallen in recent months, central bank demand continues to be very robust and this is providing strong support to gold above the $1,600/oz level. IMF data released overnight shows that Mexico added 16.8 metric tons of gold valued at about $906.4 million to its reserves in March. Russia continued to diversify its foreign exchange reserves and increased its gold reserves by about 16.5 tons according to a statement by its central bank on April 20. Other creditor nations with large foreign exchange reserves and exposure to the dollar and the euro including Turkey and Kazakhstan also increased their holdings of gold according to the International Monetary Fund data.Mexico raised its reserves to 122.6 tons last month when gold averaged $1,676.67 an ounce.Turkey added 11.5 tons, Kazakhstan 4.3 tons, Ukraine 1.2 tons, Tajikistan 0.4 ton, and Belarus 0.1 tonnes, according to the IMF. Ukraine, Czech Republic and Belarus also had modest increases in their gold reserves. Central banks are expanding reserves due to concerns about the dollar, euro, sterling and all fiat currencies.



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The Day Austerity Died

Austerity is dead!  Long live Spending! Futures are up, Italian and Spanish bonds are up, CDS spreads on them are at least 10 bps tighter, and MAIN is 3 bps tighter on the day (though I have this feeling I better type fast as we are starting to fade off the best levels). Lots of little things seem to be contributing to the strength, TXU earnings, no economic data, auctions that raised the required money, etc., but there does also seem to be a belief that Germany finally “gets it”.  That Germany is finally going to relent on their demands for austerity. So “Austerity Now” may be over, but killing something that didn’t work, isn’t the same as solving the problem.  Going back to the norm that caused the problem in the first place, hardly seems like a solution either.  Currency reversion and/or debt restructuring will be the ultimate end-game.



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Frontrunning: April 24

  • China’s Biggest Banks Are Squeezed for Capital (NYT)
  • Greeks detect hypocrisy as Dutch coalition stumbles (Reuters)
  • Hollande Blames Europe’s Austerity Plan for Le Pen’s Rise (Bloomberg)
  • In a Change, Mexico Reins In Its Oil Monopoly (NYT)
  • China Tire Demand Slows as Economy Decelerates, Bridgestone Says (Bloomberg)
  • Social Security’s financial forecast gets darker; Medicare’s outlook unchanged (WaPo)
  • Fed’s 17 Rate Forecasts May Confuse More Than Clarify (Bloomberg)
  • Senate to vote on array of Postal Service overhaul proposals (WaPo)
  • Weidmann Says Bundesbank Is Preserving Euro Stability (Bloomberg)


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How Much Bigger Can TARGET2 Imbalances Grow? Goldman Answers: "A Lot"

Back in December, Goldman Sachs entered the fray of what has since become the most sensitive topic for Germans (courtesy of this particular exponentially rising chart), namely the German funding of Europe's current account via the TARGET2 balance. Since then much has been said, up to and including a letter that Jens Weidmann sent to Mario Draghi expressing a concern about the "net receivable" status of the German central bank vis-a-vis the periphery. Unfortunately, since then the Bundesbank added another nearly EUR100 billion in net deficit balance, which has hardly helped the German people sleep better at night. So in the meantime, one question has arisen: "how much more can the TARGET2 imbalances increase?" The scientific and, non-scientific answer, comes from Goldman Sachs: "a lot."



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Overnight Sentiment: Quiet With A Chance Of Excess Volatility After Apple Reports

It' quiet out there... Too quiet, as everyone is awaiting the most important earning number of the quarter - that of Apple. Everything else is secondary. Here is how the secondary data is driving the market so far in the trading session.



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Keeping The Faith With Strategic Alpha

Here is the point; Bernanke thinks he can deal with this falling growth outlook and a deleveraging consumer by adding to QE to keep rates very low. I am not sure it will work and if it doesn’t yields could start to rise and the more he throws at it the more yields actually rise as vigilantes will fear pent up inflationary pressures. This is a potential disaster for central bankers and at some point the impact of QE may be proven limited. When it is the central banks will have shot the last bullet. Why is no one discussing this?



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It Took The Bank Of Greece Only Three Weeks To Revise Its 2012 GDP Forecast Even Lower

If there is anyone shocked by today's announcement by the Bank of Greece that the country is once again slashing its full year economic forecast by 10%, aside from the IMF of course, please raise your hand. As a reminder, the IMF, whose projections were the basis for the recently released second bailout, and which assume a flat GDP in 2013, somehow has visibility through 2020. Which is more than can be said for the Bank of Greece: its latest forecast of 4.5% GDP decline was made three weeks ago. THREE WEEKS. And it already is being revised. In other news, we look forward to updating the deposit flight out of Greek banks when the most recent monthly update is released shortly, confirming that the local economy continues to be, simply said, dead. A few more such comparable downward revisions, and the Third Greek bailout (Of European Banks), which is due any second now, may be jeopardized (as it will be more difficult to sell to Germans why they are once again bailing out French banks).



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Summary Of Europe's Sovereign Bond Auctions

Following yesterday's disastrous European economic data which basically missed everything, it was time for a Spanish Bill auction to fix everything, same as always (if only this time there was no surge in some German confidence index). Below is a recap of all of today's ECB cash recycling operations, aka auctions, which have given the overnight futures an uplifted. Still, we wonder why: the yields on all were higher across the board, which in turn means that sovereign funding is getting increasingly unsustainable.



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