Archive - Sep 2012

This morning, Germany attempted to sell €5 billion in 1.5% 10 Year bonds. It sold just €3.61 billion directly to investors (who had submitted a less than auction clearing €3.91 billion in bids), forcing the German Treasury to retain 27.8% of the auction, €1.39 billion: the highest retained amount since November 2011 when it was 39%. For one reason or another: the yield was too low at 1.42% (compared to the 1.634 average), there was much more supply elsewhere, fears of what the ECB will do tomorrow, or who knows - the real bid to cover was a paltry 0.79 (all in BTC 1.09 including government retention) compared to 1.57 at the last auction and a 1.31 average at the past 4 auctions. In other words the auction was for all technical reasons, a failure, and only the second such "failure" of 2012. The immediate reaction was Bund futures down 22 ticks at 143.28 vs 143.70 before auction as the market digested the surprising disappointment, with the German 10-year government bond yield up 2.4 basis points at 1.41 percent vs 1.37 percent before auction. In summary, if the Germans needed any more reasons that funding the insolvent Eurozone at all costs up to an including debt monetizations, which may result in failed bond auctions for German itself, are not in their best interest, they just got one. The good news: in an email sent out immediately by the German Finance agency, the bond sale was "not a risk to the budget." Wouldn't want a failed bond auction to jeopardize the budget now.

The heightening tension between the United States government and Iran’s is based off of the fallacious notion that nuclear weapons have a legitimate purpose outside of killing enormous amounts of people.  Yet they have no other real purpose in the end.  Governments possess nuclear weaponry because there is little recourse for state-sanctioned murder.  The millions of innocent lives that stand to be vanquished off the face of the Earth have little meaning to the power-tripping political elite.  So while the Iranian government’s pursuance of nuclear weapons should be condemned, the United States government, the Israeli government, and others capable of waging nuclear war are in no place to criticize.

With the current lackluster economic trends and job outlook, unemployment and salary figures are tossed around left and right; figures can make or break a politician's career. The Non-Farm Payroll report supplies these numbers, and its monthly findings impact global economic performance expectations - but its reporting (as we have been vociferous about) on unemployment rates and job outlook are skewed to paint a falsely healthy picture of the economy. The following info-graphic sheds more light how the 'official' unemployment figures are much lower than they really are.

But now, there is no deus ex machina

"Recessions are a natural economic feature and their regular occurrence is healthy and indeed essential," is how Deutsche's Jim Reid introduces his investigation into post-Fed un-natural business cycles. Without them there is a serious danger of bubbles and the misallocation of resources as the further market participants detach themselves from the last downturn the more they tend to under-estimate risk. We, like Jim, would argue that the reason the Great Financial Crisis was so deep was due to the authorities continued refusal to let the business cycle take its natural course. The three 'super-cycles' between 1982 and 2007 were the exception rather than the norm, one where Central Banks and Governments had almost total flexibility over policy. Not only are we battling with the huge structural problems that the post-credit crisis world brings, we are fighting it without much policy flexibility and are indeed being forced into a reversal of stimulus at arguably exactly the wrong time. So it all adds up to a return to more normal length business cycles in our opinion - or perhaps even shorter.

It is amazing how big an effect a rambling, sleep-inducing speech by a chief central planner can have on financial markets in the short term. Nonetheless, the speech contained a few interesting passages which show us both how Bernanke thinks and that people to some extent often tend to hear whatever they want to hear. Bernanke noted that although he cannot prove it, econometricians employed by the Fed have constructed a plethora of models that show that 'LSAP's (large scale asset purchases, which is to say 'QE' or more colloquially, money printing) have helped the economy. In other words, although no-one actually knows what would have happened in the absence of the inflationary policy since we can't go back in time and try it out, the 'models' tell us it was the right thing to do. However, some indications would suggest that mal-investment is higher than ever - and accelerating - as the production structure ties up more consumer goods than it releases, an inherently unsustainable condition; additional expansion of money and credit will only serve to exacerbate the imbalance.

We know top-line numbers were a disappointment in Q2; but the long-only AUM-defending commission-takers will remind you that 'stocks are cheap', '...valuation...', 'money on the the sidelines', and on the surface there was a 6.9% increase in EPS from Q2 2011 (growthy and as UBS notes - anything but anemic). But, like every good story, the truth is darker under the surface; looking at earnings growth (i.e., without the impact of shrinking share counts) excluding prior-period Financial sector writedowns, we see an outright earnings contraction. Further, consensus estimates are calling for EPS growth to go negative in 3Q12 - falling to $25.07 from $25.65 - which will make two quarters in a row of negative earnings growth - what we would consider an earnings recession.

Today's ZH articles in audio summary! Also known as a podcast, or as the Ancient Egyptians once said: "What the hell is a podcast?" Everyday, 8pm New York Time.

While we have long realized that under the 'New Normal' reality is widely in the eye of the beholder, especially if that beholder is an employee of some central planning authority, where good is good, bad is better, where "if things are serious, than you have to lie", and the result is that every 'fact' is both a wave and a particle at the same time regardless if observed with the wave-particle duality never collapsing (thus making a mockery of Schordinger's principles) little did we know that it also refers to the physical age of former 'prenup free' wives of one time hedge fund moguls, and now merely drugged, drunk drivers of (appropriately enough) GPS-impaired vehicles, which it appears can have a variance of 7 years in the span of 2 years... Read on.

While the Clint Eastwood clip was a solid 8 out of 10 on the weirdness chart, it took the man who, as everyone knows, scares all charts away, and who singlehandedly burst the dot-com bubble, to put things in perspective to the evangelical crowd. Because, while Waldo may be hiding from Norris, Norris will no longer hide from what he terms "socialism or something much worse."

Mario Draghi is a few days away from creating the biggest two tiered market in history.

Just in case America's debt slaves, who as of today can congratulate themselves on a brand spanking new 16 handle in front of the 12 zeroes that frame their public debt obligation, did not have enough to celebrate, here is what happens when the local Police station also wants to celebrate something brand spanking new: in this case the new and improved SWAT-H vehicle. This is merely the latest and greatest entrant in the "gentrification"-vehicles that taxpayer dollars are buying in order to be more effectively suppressed as one after another pillar of this country's democracy is taken down. And, for your viewing pleasure, here are the highest crime rate regions that will likely get their 'fair' share of attention from this perriwinkle-blue camper-van of enforced docility.

...and so it begins - with a bellwether:

*FEDEX CUTS 1Q EPS FORECAST TO $1.37-$1.43, EST. $1.56

"Weakness in the global economy constrained revenue growth at FedEx Express more than expected in the earlier guidance."

FDX -4% AH and UPS -2.5% - both to lows of year! This is a not a good sign for GDP!