What To Expect From Today's FOMC Minutes

The minutes of the December FOMC meeting will be released at 2 PM ET on Wednesday, January 8. As BofAML notes, the minutes give a platform to those outside the voting majority on the FOMC to express their disagreements with the current policy stance. Typically, that has meant that the minutes sound more hawkish than the FOMC statement or speeches by the voters. Also remember that much of the discussion in the minutes is based on old news: the US economy has shown mostly stronger data since the December 18th FOMC decision to taper by $10 bn as of January 1.

Silver Turns Red For The Year

With 10Y Treasury yields pressing up agaist 3.00% once again (and equities shrugging off the taper-confirming news from ADP), precious metals are under pressure. Despite a few positive days, the last two have seen silver give back all 2014 gains and push back into the red for the year. Gold remains modestly green (still outperforming stocks for now).

Japan Calls China "Voldemort", China Responds With "Darkest Devil"

The war of words (and deeds) is once again escalating between China and Japan. As we detailed last night, this has been a long time coming and as Reuters reports today took a further turn for the worse. In an op-ed in Britain's Daily Telegraph, the Chinese ambassador to Britain, Liu Xiaoming, wrote last week: "If militarism is like the haunting Voldemort of Japan, the Yasukuni shrine in Tokyo is a kind of horcrux, representing the darkest parts of that nation's soul." Liu's commentary was followed by another published on Sunday by his Japanese counterpart, Keiichi Hayashi, in the same newspaper, headlined: "China risks becoming Asia's Voldemort". As was noted, "Five thousand years of traditional virtues have been turned into this?"

Market's Kneejerk ADP Response: More Taper

Equity markets appear wholly dissatisfied with this morning's 'good' news and are unsure whether this taper-on data is confidence-inspiring or liquidty-sapping. The ADP print appears to confirm a hgher probability of another $10 billion taper. Bond yields jumped higher, the USD jumped higher, gold dropped, and stocks are limping to the day's lows...

ADP Payrolls Add 238K Jobs In December On Construction Surge, Highest Print Since November 2012

Unless ADP is forced to revise its December print following the BLS report on Friday (which in keeping with the baffle with BS tradition should be a major disappointment), the Fed will have no choice but to taper by another $10 billion at the next opportunity, because moments ago ADP, which for all intents and purposes is merely noise until it has revised its data to comply with Nonfarm Payroll reports, announced that in December, some 238K jobs were added in the US, well above the 200K expected, and the highest monthly print since November 2012.

Extreme Cold Leads To 9 Deaths, Forces Escaped Inmate To Turn Himself In

The polar vortex came, saw, and is on its way out, and now comes the time for the damage report. As Reuters reports, "At least nine deaths have been reported across the country connected with the polar air mass that swept over North America during the past few days. Authorities have put about half of the United States under a wind chill warning or cold weather advisory.... Homeless shelters and public buildings took in people who were freezing outside. Daniel Dashner, a 33-year-old homeless man who typically sleeps under a bridge on Milwaukee's south side, said he opted to seek a spot at a shelter on Monday night. "Usually if I have four or five blankets, I can stay pretty warm, but when that wind is blowing, I don't care how many blankets I have, the wind blows right through me," he said, as temperatures dropped to minus 6 degrees Fahrenheit (minus 21 degrees Celsius)." On the other hand, there was some levity in the newsflow, when as AP reported, an escape inmate opted for the familiar warmth of prison and turned himself in.

Spain Youth Unemployment Rises To Record 57.7%, Surpasses Greece

There has been much speculation recently about some immaculately conceived Spanish economic recovery. And while it has certainly sent the local Ibex stock market soaring, we fail to see any indication of such a recovery, at least in official economic data. The latest example being, of course, today's European unemployment for November, which at the Euroarea level remained flat at 12.1%, which also is the all time record high following a prior revision. However, what is more troubling is that according to the official European statistics keeper, Spanish unemployment in November was 26.7%: tied for the all time high seen in October and hardly an indicator of some imminent economic renaissance. There is, of course, always December - that month in the New Normal when hiring really picks up. But where things get really bad is when one looks at Spain's youth unemployment. At 57.7% in November, nearly two in three Spaniards under 25 had no job, and the nail in the coffin for the "recovery" is that this rate is now well above the latest update from Greece, where the youth unemployment was "only" 54.8% as of September.

Frontrunning: January 8

  • Here comes JPM's next multibillion legal reserve: Federal Probe Targets Banks Over Bonds (WSJ)
  • Mulally Bows Out of Microsoft CEO Race, Staying at Ford (BBG)
  • United States sending more troops and tanks to South Korea (Reuters)
  • Eurozone unemployment sticks at record high (FT)
  • China-Japan 'Voldemort' attacks up ante in propaganda war (Reuters)
  • Alternative Lenders Peddle Pricey Commercial Loans (WSJ)
  • John McAfee: glad Intel dropping name from security software (Reuters)
  • Jobless Benefits Bill Stays Alive Amid Talks on Offsets (BBG)
  • Chicago Colder Than South Pole as Frigid Air Clamps Down (BBG)
  • Former Miss Venezuela shot dead in attempted robbery (Reuters)

FOMC Minutes Day Market Summary

Some better than expected economic news out of Europe, Greek 10 Year yields dropping to 7.65% or the lowest since May 2010, and futures are... red? Alas, such is life in a world in which the S&P500, aka the E-mini, is simply a derivative of the Yen funding currency pairs, where the USDJPY touched on 105 after a straight line diagonal move only to sell off in recent trading. Heading into the North American open, stocks in Europe are seen mixed, with peripheral stock indices outperforming, buoyed by the prospect of Portugal echoing yesterday’s Irish NTMA return to capital markets with its 10y bond syndication. As such, despite the cautious sentiment, financials led the move higher, with Italian banks gaining for 4th session as IT/GE 10y spread narrowed to its tightest level since early July 2011. Of note, FTSE-100 index underperformed its peers since the get-go, with retailers and tobacco names under pressure. In spite of opening higher by over 3%, Sainsbury's shares have since reversed and are seen lower by almost 2% after co. CFO said that he expects FY LFL sales to be just below 1% and expects Q4 to be similar to Q3. Elsewhere, tobacco names came under selling pressure following reports that China is planning a ban on smoking in public by year's end.

The FBI Admits Its Primary Focus Is "Not" Law Enforcement

Recently, the FBI made a significant change to its self-proclaimed primary focus in its fact sheet from “law enforcement” to “national security.” This change merely confirms what I and countless others have claimed to be true for quite some time. That the entire regulatory, security and intelligence apparatus of these United States has been redirected away from protecting the Constitution and the rule of law, toward a narrow focus on protecting the economic and social positions of the oligarch class at all costs under the guise of a “war on terror.”

Japanese Consumer Squeezed As Phone Prices Rise At Fastest Pace In 21 Years

While Abe begs (and cajoles) business leaders to raise wages (whether it makes economic sense or not), his plunging approval rating could have something to do with the ongoing squeeze the average gadget-freak Joe-san consumer is experiencing. Bloomberg reports, for the first time in 21 years, mobile phone prices are rising. The typical deflationary path of technological improvement is being overwhelmed by JPY weakness. "Inflation is spilling across a range of products," warns a Dai-Ichi economist, adding that the weakening yen is driving up prices as "Japan is importing more final goods as production shifts overseas."

So You Want Higher Rates?

Some simple bond math: rising rates lead to lower prices. Holders of rate products, once they anticipate that future prices will fall, sell today to minimize losses. So the question: when the selling of the world's debt begins (and accelerates), especially with everyone urged by central bankers to shun bonds and go for "undervalued" stocks, who buys? We ask because, as the chart below shows, there is quite a bit to sell.

Guest Post: Shinzo Abe Is Not Welcome In China, And Never Will Be

Even before Abe was elected prime minister on December 26, 2012, Chinese media were warning that he would be overly nationalistic. Upon Abe’s election, major Chinese news outlets expressed dismay over the future of China-Japan relations. It seems that the visit to Yasukuni Shrine was the last straw for Chinese leaders in their dealings with Abe. Hua said that Abe’s decision to visit the Shrine “severely damages the political foundations of China-Japan relations.” Simply put, “There’s no domestic political room for China to ease its attitude toward Japan on the issues of the Diaoyu Islands and the Yasukuni Shrine.” When one or both reaps a domestic advantage from stoking the fire, forget about easing tensions —avoiding actual conflict is the best case scenario. Under the circumstances, the only hope for a reset of China-Japan ties is if Abe is ousted as prime minister.

Gun Sales Surge To Record High In 2013; Expect Ammo To Spike In 2014

A record 21 million applications were run through the National Instant Criminal Background Check System (NICS) last year - an 8% increase over 2012 and, as The Washington Times reports, the 11th straight year that the number has risen. Background checks serve as a proxy for the number of gun sales, which soared in the months immediately after Sandy Hook (but notably fell in the last 2 months of 2013 as the Newtown and 'fear of Obama' effect wore off). "2013 was the best year for firearm sales (commercial, domestic) in history — period!" notes the president of the independent firearm owners association, adding that "Ammunition will still be very strong in 2014 as it hasn’t caught up nationally with the demand." This could become a problem since, in what many believe was an attempt to 'crowd out' private buyers, the Homeland Security Department bought 1.6 billion rounds alone.

An Austrian Wolf In Keynesian Sheep's Clothing

"Eventually (un-manipulated) asset prices always return to their fundamental value, which is why bubbles always pop. The FOMC has backed itself into a corner. Current changes in policy are being designed around efforts to manage the unwind process seamlessly. Central bank (and government official’s) micro-management appears based on a belief that they can exert an all-encompassing central control over markets and peoples’ lives. Those in power have come to believe that policies have a precise effect that can be defined and managed. This is highly unlikely."

Michael Pettis Warns China Bulls "It Is Almost Impossible For Growth To Remain This High"

With manufacturing and non-manufacturing PMIs disappointing, and the nation's banking system still stuck in the thralls of a liquidity crisis (each time the PBOC removes the punchbowl), Michael Pettis' warnings are becoming increasingly likely (even though consensus remains that China will save the world somehow - as it transitions 'smoothly' to a consumer-based economy). Ironically, he notes, GDP growth rates of 7% or more, on the other hand, will suggest that credit is still rising too quickly and that China has otherwise been unable to implement the reforms, in which case China is likely to reach debt capacity constraints more quickly. Growth of 7% for the next few years, in other words, is almost prima facie evidence that China is not adjusting.

Don't Worry Folks, The Fed Says Stocks Aren't Overvalued

Remember when the Fed got its Series 7 and Series 63, and was solely engaged in the business of advising on stock valuation? Neiter do we. But that doesn't prevent it from now openly opining on what it thinks is the fair value of stocks:

  • FED'S WILLIAMS SAYS U.S. STOCKS AREN'T OVERVALUED

So, the implication is one should buy stock then? And if the market craters tomorrow, the Fed will surely make everyone who listened to this non-voting moron who has made a complete mockery of the Fed's inflation and full employment mandates and replaced them with the "fair stock value" mandate, whole at the expense of all the other taxpayers, right? Finally, since the market is not overvalued here, what is the Fed's price target on the S&P 500, oh unregistered financial advisors-cum-Princeton academics of the Marriner Eccles building.

Saxo Bank CEO Fears The Broad Relevance Of Ayn Rand In Today's Society

One of the biggest mistakes we can make, Saxo Bank's CEO warns, is to assume that rationality will prevail, that just through superior economic performance, freedom will capture enough peoples' hearts in a democracy to win the day. In the last of his three-part series (part 1 and part 2), Lars Seier Christensen focuses on the broader relevance of Ayn Rand in society today, noting that she remains among the few that recognised with crystal clarity, that we will not win the battle through just proving that freedom and capitalism works. This, he warns, creates a major problem for those of us that like to argue rationally, rather than emotionally.

JPMorgan, Madoff, And Why No One Dared Ask "The Cult" Any "Serious Questions As Long As The Performance Is Good"

JPMorgan: "[t]here are various elements in the story that could make us nervous," including the fund managers "apparent fear of Madoff, where no one dares to ask any serious questions as long as the performance is good.... personnel at one feeder fund seem[ed] very defensive and almost scared of Madoff... They seem unwilling to ask him any difficult questions and seem to be considering his 'interests' before those of the investors. It's almost a cult he seems to have fostered."