Sell-Side To Fed "Don't Leave Us Now"

In spite of the prime-dealers seeming agreement that SepTaper is most likely; judging by the plethora of talking-heads and research pieces hitting in the last few days, the idea that a Taper was a good thing (Tepper) and in fact indicates 'health' appears to be on the back-burner as almost every sell-side shop is out with a discussion of just how potentially bad things are macro-economically and that a taper should be off the table. Below is BofAML's Ethan Harris' seven reasons to delay the taper following today's "punch in the stomach for the economic recovery story" (and our 4 reasons why they can't or won't).

Yield Rise "Blessing in Disguise" To Some, Nomura Says

While many begrudge the rise in interest rates and their concomittant tightening of financial conditions, Nomura's George Concalves notes that the move has been a "blessing in disguise" for most long-only bond investors. Insurance companies and pension-funds, who need 'yield' to cover long-term liabilities, have been underweight since the Fed began Operation Twist (on the basis of the yield became too compressed) but the recent sell-off in Treasuries (which does not reflect any asset-allocation or great rotation since stocks have been just as weak) enabled these funds to put money to work. This helps to explain the very notable flattening in the yield curve (5s30s -17bps in the last week) as duration extension is more economically attractive. Concalves suggests Taper fears are overdone and that should rates back up another 25bps, there is more dry-powder to put to work in bonds.

Jackson Hole Presenter Warns: "Bottom Could Fall Out Of The Economy As It Did In The Great Depression"

"So far, inflation has fallen only slightly and remains in positive territory. Fears in early 2009 that rapid deflation might break out and  cause the economy to collapse as in 1929 to 1933 proved unfounded, luckily. I have advanced the hypothesis that rampant price-cutting has failed to appear because businesses are in equilibrium and perceive that price-cutting has bigger costs than bene fits. If the hypothesis is wrong and businesses are finally responding to fi ve years of slack by cutting prices, the generally optimistic tone of this section could be quite mistaken. The bottom could fall out of the economy as it did in the Great Depression."

Call It A Ballmer Game: Who Knew What When?

Just over a week ago, a funny thing happened in the options market for Microsoft; namely, massive flows into the September $32 and $33 Calls. A few days later those options have risen from around 23c to over $1.50. Given the surge in implied volatility it is clear that whoever was buying these options had little thought for 'value'. Of course, linking a short-dated (but very sizable) options purchase from a week ago to today's spike in price is difficult but it seems unusual activity at best (and nefarious at worst).

Slaying Stolper Strikes Again

Stolper strikes again:  "Trade Update: Close Short GBP/NOK tactical trade recommendation for a potential loss. On June 27 we recommended going short GBP/NOK after the NOK weakened sharply following the Norges Bank meeting on June 20. At the time, even though Norges Bank showed some concern over the weaker pace of activity in Norway, we thought the weakening in the NOK was an overshoot. However, weaker-than-expected data out of Norway – especially the weak Q2 GDP reading earlier this week – have pushed the NOK weaker, while the recent run of better-than-expected UK data have also pushed the GBP stronger. This Wednesday (August 21) we went through our stop on this recommendation of 9.46 and close it for a potential loss of 3.4%."

The Grand Experiment Part 2: Unlimited State Creation Of Credit And Cash

What are the consequences of a central bank creating trillions of dollars for speculation and a central state borrowing trillions of dollars on a permanent basis? As noted before, risk cannot be extinguished, it can only be offloaded onto someone else or masked for a short time. The consequences of this sleight-of-hand (the Fed creates money to buy Federal bonds so the government can borrow and blow trillions of dollars) are not yet visible, but there will be consequences at some point; the risks have only been temporarily cloaked.Borrowing and printing $10 trillion hasn't fixed anything; it has only raised the reservoir of risk to the top of the dam. Cracks are opening as the pressure builds, and we should not be surprised when risk and consequence reconnect and the dam gives way.

Best And Worst Performing Hedge Funds Of 2013 - Update

Here are the best and west performing hedge funds so far in 2013. We hardly find it surprising that the woefully named Keynesian Leveraged Quantitative Strategies, which has gotten every part of its name wrong, is among the worst alpha (and amusingly beta) generators so far in 2013.

Precious Metals Spike

It would appear the news that the housing 'recovery' may not be as strong as every asset-gethering talking-head exclaimed it will be in the face of soaring mortgage rates has driven investors to the safety of precious metals in a soon-to-be-re-stimulated economy as moar free money is clearly needed... (bonds are bid too on the Un-Taper inspiring news - and USD dumping - but stocks appear to have been side-tracked for now as the 'wedge' between fundamental reality and monetary-policy perceptions is shown even more egregiously).

New Home Sales Crater To Lowest Since October; Biggest Drop Since May 2010; Median Home Price At 6 Month Low

And so the housing "recovery" comes to a screeching halt, which is not surprising as there never was a recovery to begin with.  Moments ago cheerleaders of the second housing bubble were shocked to learn that in July a tiny 35K new houses were sold (with just 3K sold in the Northeast, and just 19K in the otherwise strong South), of which 13K houses were not even started. This translated into a puny 394K seasonally adjusted annualized sales, missing expectations of 487K by nearly a record 100K, and in addition the June print was revised much lower from 497K to 455K (which back in July beat expectations of 484K and was trumpeted as the highest print since 2008 - so much for that). Yet one thing that did not change is that the median home sale price decline continued, and in July dropped to $257.2K down from $258.5. And now time to spin this ugly news as great because it means that maybe the Fed will delay the September taper (it won't).

Ballmer's Legacy: $350 Billion In Value Subtracted

It has been a wild ride for Steve Ballmer since he became Microsoft CEO in January 2000. A market-cap loss of over $330 billion is hardly the legacy he would want to have left but it is perhaps the $24 billion spike in market cap that has occurred today since his resignation that will have him leaving before the 12 months are up...

Microsoft's Steve Ballmer To Retire Within 12 Months, Stock Surges

"There is never a perfect time for this type of transition, but now is the right time," Ballmer said. "We have embarked on a new strategy with a new organization and we have an amazing Senior Leadership Team. My original thoughts on timing would have had my retirement happen in the middle of our company's transformation to a devices and services company. We need a CEO who will be here longer term for this new direction."

Un-Shared Prosperity And America's Lost Decade

Between 2000 and 2012, wages are stagnant (or have declined) for the entire bottom 70% of the wage distribution. In fact, as the latest study from the EPI shows, for virtually the entire period since 1979 (as we have discussed a number of times, most recently here and here), wage growth for most workers has been weak. The median worker saw an increase of just 5.0% between 1979 and 2012, despite productivity growth of 74.5%, while the 20th percentile worker saw wage erosion of 0.4% and the 80th percentile worker saw wage growth of just 17.5%. In other words, the vast majority of wage earners have already experienced a lost decade, one where real wages were either flat or in decline; and given the policies (monetary and fiscal) that shows no sign of changing, it seems our recent comment that the US appears to be worse than Japan is becoming more prescient.


A Recovery... In Burglaries: Theft Surges In European Periphery

There is more than just loan delinquencies, unemployment rates, and PMIs that are on the rise in Europe. As we have long-feared, the relative austerity combined with high unemployment has historically always been a boiling pot for increased social unrest and it would appear this is very much the case among the most troubled peripheral nations in Europe. As Bloomberg's Niraj Shah points out, burglaries in Greece (up a stunning 63%) and Spain (53.5%) have soared since the crisis began in 2007. This compares with a European-Union-wide average increase of 7% (which is notable in and of itself) as Cyprus and Portugal also see ~20% increases in theft. With unemployment rates showing no signs of slowing, we suspect this trend will only get worse as the divide between the haves and have-nothings increases.

US Refines "Military Options" Ahead Of Syrian Strikes

Now that the US has made up its mind once more and "knows" that Wednesday's chemical attack in Syria was conducted by the government and targeting the "rebels", even as the "developed" west calls for a UN investigation to determine just that, and as the US (including the CIA), Israel and Jordan have already sent an advance military force into Syria to conduct more false flag provocations and blame it on the regime, the only next step is to soften and prepare popular opinion for what comes next. And what comes next is on the front page of the WSJ this morning: "The U.S. began refining its military options for possible strikes in Syria, officials said... Officers at the Pentagon on Thursday were updating target lists for possible airstrikes on a range of Syrian government and military installations." Then again we have seen all this before. Surely, one of these times the administration will actually go ahead and push the button instead of just talking about it.

Frontrunning: August 23

  • Lew warns Congress to strike debt ceiling deal (FT)
  • Central-Bank Moves Blur the View (WSJ)
  • Brazil, Indonesia launch measures to shore up their currencies (FT)
  • More mainstream media reminded about Fukushima - Radioactive ground water under Fukushima nears sea (AP)
  • Fukushima inspectors 'careless', Japan agency says, as nuclear crisis grows (Reuters)
  • New York Banker Arrested on Rape Charges in East Hampton (NYT)
  • This time they mean business, for real: CFTC Moves to Rein In High-Speed Traders (WSJ)
  • Britain operates secret monitoring station in Middle East (Reuters)
  • Moody’s considers downgrading top US banks (FT)
  • China's Bo calls wife mad after she testifies against him (Reuters)
  • JPMorgan Sub-New Normal Growth Seen Vexing Next Fed Chief (BBG)
  • SEC calls for cooling-off period for more staff (Reuters)

Little Excitement Following NASDARK Day

It was a quiet overnight session, in which the Nikkei was catching up to USDJPY weakness from the past two days, while China dipped once more despite the NDRC's chief economist stating China may cut RRR or conduct more reverse repos in H2 to maintain stable credit as loan growth slows down (or in other words things go back to normal). In Europe ECB's Nowotny decided to undo some of Draghi's recent work when he said that "good economic news" removes the need for a rate cut which in turn pushed the EURUSD higher (and European exports lower), even as former Cyprus central bank Orphanides said the Euro crisis may flare up after the German elections. In the UK Q2 GDP came in slightly stronger than expected at 0.7% vs 0.6% Exp. letting the GBP outperform since a need for the BOE to ease, at least in the short run, is becoming less pertinent. In amusing news, Moody’s late yesterday put six largest U.S. banks on review as it considers the effect of evolving bank resolution policies under Dodd-Frank and international regulations. As such GS, JPM, MS and WFC may be cut.

On The Dangers Of The NSA... From March 27, 1983

The warning signs were all there. Long, long ago they were all right there. Reading this article from the New York Times, published thirty years ago, brings forth emotions of frustration, disappointment and even a sense of resentment. Resentment that many of those that came before us knew about all of this and basically did nothing.