Archive - Dec 21, 2012

Maybe the Mayans had it right all along…..

This should be good. Part apology, part job interview, part finger-pointing; Speaker Boehner is set to speak at 10ET to explain how this is all going to be ok... or not...

2 days ago US Treasury 10yr yields were 10bps cheap vs stocks.  Well, not anymore.  US Treasuries now have both technical and cyclical forces on their side for the next 1-2 weeks.  Let us explain how...

If you were wondering why the Argentinian leadership were unwilling to pay off a few 'annoying' hedge funds with a few billion dollars (and were pissed about losing one yacht), then perhaps this report from the BBC will enlighten. Argentina authorities have sent hundreds of troops to the southern city of Bariloche after a spate of looting. Critically, Bariloche is not some shanty-town, it is one of the nation's most popular ski resorts and 'relatively' affluent. The following clip sums up the dangerous situation the nation finds itself in, despite the government's assurances that this is a "false picture of social and political collapse." Looks real to us?

The Leuthold Group constructs their Risk Aversion Index (RAI) with a combination of market based indicators,  including credit and swap spreads, implied vol, currency moves, and commodity prices. No doubt quantitative easing is repressing market fear. They also note that periods of low risk aversion tend to run longer than streaks of elevated risk aversion. How long this time? We don’t know but we’re going to think long and hard over the holiday about the potential macro swans in 2013. Here are eight starting thoughts we will be contemplating...

Fiscal cliff, fiscal cliff;
     Politics in play!
The only thing they have in mind;
     Is the next election day! Hey!
Fiscal cliff, fiscal cliff;
     Isn’t politics great?
They've left us now in such a mess;
     We’ve no choice but to inflate.

It's no secret that high-frequency traders and those who employ bad or manipulative algorithms are swimming in pools of money.  Most of these guys making complex statements for computers to follow aren't even financially inclined, most are physicists, aeronautics engineers, and quants looking to impose math upon the world instead of deriving it from the world.  This form of trading has reversed the flow of finance.  At one point the stocks that make up an ETF would move before the ETF.  Now because of the speed at which computers can freeze the stock prices, calculate wh

Something funny happened on the way to another "it's all Sandy's fault" justification for economic data misses today: it flipped. Because while in November, Personal spending was expected to surge above personal spending (which printed up 0.4%, in lined with expectations), instead what the BEA - best known for producing such accurate series as the US GDP - reported is that Personal Incomes soared by a whopping 0.6% in November, double the expectations and compared to a 0% print in October. The reason? "Private wage and salary disbursements increased $41.1 billion in November, in contrast to a decrease of $16.3 billion in October.  The October decrease in private wages and salaries reflected work interruptions caused by Hurricane Sandy, which reduced wages and salaries by $18.2 billion at an annual rate." And the stunning data did not end there: real Disposable Income soared by a whopping 0.8% following a drop of -0.1% in October. As the chart below shows, this was the biggest monthly surge in Real Disposable Income in years. The result of all this is that savings, which would have otherwise dropped to a fresh 5 year low, rose to 3.6%. And concluding the wonderful data in the month when the impact of Sandy was to be most acute, we got Durable data, which blasted through the roof, if only on a Seasonal Adjusted basis: with Durable Goods rising 0.7%, on expectations of 0.3%, and the last month revised from 0.0% to 1.1%, while Capital Goods orders non-defense ex-aircraft surged 2.7% on expectations of an unchanged print (with the highest expectation being 1.0%), with the last one revised from 1.7% to 3.2%. (Of course, non-seasonally adjusted durable goods data plunged but who's counting).

Still here. We are still here. All of the stuff and nonsense about taxing the wealthy and gibberish about who and when and where to tax is like so much marshmallow spread on a peanut butter sandwich; it just doesn’t matter. The galling omission of not concentrating on what is truly important, the cost of entitlements and social programs and what the nation can and cannot afford shows the true worth of our nation’s leaders which is about equal to a wooden nickel or a three dollar bill. It is the Lost Boys living in Never-Never Land and Wendy nowhere in sight. So the Munchkins have been awakened and I predict the Wicked With is right. The people of Oz have left the poppy fields where they slept in a flower induced dream and will soon be headed into the Emerald City to demand answers. The melting has begun.

Iraq quadrupled its gold holdings to 31.07 tonnes over the course of three months between August and October, data from the International Monetary Fund showed on yesterday. The IMF's monthly statistics report showed the country's holdings increased by some 23.9 tonnes in August to 29.7 tonnes. That was followed by a 2.3-tonne rise in September to 32.09 tonnes and then a cut of 1.02 tonnes in October to 31.07 tonnes.  There was no data for November. It is Iraq's first major move in years to bolster its gold reserves. More recently, Brazil raised its gold holdings by 14.68 tonnes, or 28 percent, in November, bringing its bullion reserves to 67.19 tonnes. The addition comes on the heels of an even bigger increase in October when the South American country added 17.17 tonnes to its reserves. In September, it  increased holdings by 2 tonnes. Meanwhile Turkey cut its gold holdings last month by 5.84 tonnes to 314 tonnes from October. The country allows commercial banks to use gold as collateral for loans, and changes to its balance sheet are often connected to such activity.

It may not be apparent immediately, but in the aftermath of last night's epic collapse in fiscal cliff negotiations, which incidentally was perfectly obvious to anyone with half a brain and who experienced last summer's debt ceiling fiasco, which sadly excludes all paid political and financial - including sellside - commentators, all of whom expected a prompt resolution to this polarized issue as recently as a week ago, there is major behind the scenes panic. Because while banks would write profuse, long-winded essays to explain the logic and rationality of the "deal", now that they are all faced with adjusting their narrative the best they can come up with are two sentence fragments such as this one from Citi's Steven Englander "Problem is that it is the right wing of the Republican Party that wouldn’t give Boehner their support, making it less likely that he could win broad support among Republicans for a compromise with the White House. Also he will have to spend next couple of days negotiating with both his own party and the Democrats without knowing how much he can deliver." The answer: nothing at all. In fact as Scott Rigell said “I’m not sure the people who have been up here 20 or 30 years really understand what the next iteration of this process is”.  He is speaking for pretty much everyone else who has now been made a total fool by the Black Swan that is Congress. As a reminder a 3 month delay resolution assures a US recession, and a ~20% or so minimum correction in the stock market, which has been priced for absolute perfection for months, and which will once again have to be used by Wall Street as a means to get a consensus out of DC. Just as we predicted over a month ago. Finally while we may have avoided the Mayan apocalypse, we do have a quad witching and a NASDAQ rebalance to look forward to. Enjoy!

• This is signal, the rest is noise: Russia's Putin set for stand-off with EU on Syria, energy (Reuters)
• Boehner's Budget 'Plan B' Collapses (WSJ)
• Boehner has few options in "fiscal cliff" mess (Reuters)
• Maya "end of days" fever reaches climax in Mexico (Reuters)
• Monti Praised by Merkel Favored Less by Taxed Italians (BusinessWeek)
• China probes Yum Brands' KFC over safety of chicken productsa (Reuters)
• Looting in Aregentina: 400 Border Guard officials deployed to Bariloche over looting (BAH)
• Regulatory 'Whale' Hunt Advances - Comptroller Expected to Take Formal Action Regarding JPM's Trading Fiasco (WSJ) - but no punishment
• U.K. Banks Seen Sacrificing Lending to Meet BOE Demand (Bloomberg)
• US banks face rise in bad loans cover (FT)
• Daily Gun Slaughter in U.S. Obscured by Newtown Rampage (BBG)
• China Restricts Bond Sales by Risker Companies (BBG)