Archive - Jan 24, 2013

Just when the Super Goldman Mario Bros (Monti and Draghi) told us everything is fine in Europe, and it is not only safe but encouraged to get back in the pool, the first canary of 2013 just died.

I do understand this is very co-dependent, sick, sad, and wrong on many levels, but I have decided that I don't really care.

From the highs this morning as European markets closed, S&P 500 futures have plunged 11.5 points. Doesn't sound like much - but this is in fact the largest intraday swing of 2013...Keep calm and BTFD.

With eight months left until million of Americans are supposed to begin shopping at online markets created by the Obamacare 'tax' law, the insurance industry is concerned at the government's lack of readiness. Bloomberg reports that Jim Donelon, the head of the National Association of Insurance Commissioners, suggested that President Obama may need to delay the implementation of the health-care overhaul or "risk chaos" when the subsidized plans go on sale later this year. While it is clear that the administration has shown no sign of seeking a delay, Donelon notes that "...to rush into implementation before it's ready would not be in the President's best interest."

One of the most dangerous mistakes possible to make in trying to understand the shape of the economic future is to think of the fundamental concepts of economics as simple and uncontroversial.  They aren’t. In economics, as in all other fields, the fundamentals are where disguised ideologies and unexamined presuppositions are most likely to hide out, precisely because nobody questions them. In this note we will explore a number of things that seem, at first glance, very obvious and basic.  There are lessons of crucial and deeply practical importance to anyone facing the challenging years ahead. This is, above all, true of the first thing we want to talk about: the tangled relationship between wealth and money. Chris Martenson, likes to remind us all that money is not wealth, but a claim on wealth.  He’s quite right, and it’s important to understand why.

A funny thing happened as US equity indices pushed to new highs - levered this time by Bond and FX markets - and following the new normal US-Open-to-EU-Close pattern. VIX, that much talked-about contemporaneous indicator of concern (or complacency) took a divergent dive. Different this time? Maybe... Or are all those downside call-writers covering their levered losses and forced buy-ins in AAPL? Seems like that initial burst of recovery is fading fast now as AAPL drops back below its VWAP.

Spanish and Greek youth unemployment surged to yet another new record as joblessness among the under-25 cohort is now above 55% for both of these troubled nations. "We haven't seen the bottom yet," one analyst notes as the BBC notes that the youth unemployment in these nations is more than double the euro-area average. As we have noted many times, this ludicrous state of affairs (in nations that proclaim the worst is past) is by far the most-concerning for European stability. Even Frau Merkel opined this morning in Davos that: *MERKEL SAYS EU YOUTH UNEMPLOYMENT BIGGEST BURDEN, NEEDS TACKLED Yet, there is nothing being done. Across the 27-nation bloc, there are 5.8 million people aged under-25 that remain long-term unemployed. This has always and forever led to extreme events and social unrest, as we warned here (must read). As the year warms up, which nation will 'spring' first?

The global economy is ill, and everyone who is not mired in denial or a paid shill knows it. Saying it's healthy doesn't make it so. Is is possible to usefully generalize the illness and outline a cure in a few points? Maybe not, but let's try anyway.

We are now four-for-four (five-for-five if we include the drastic downward revisions in the Chicago PMI) for regional Fed business outlooks taking a serious (and consistent) turn for the worse. Kansas Fed manufacturing just missed expectations turning negative once again. Amid the sub-indices (which were broadly weak) was a plunge in employment as it fell to August 2009 levels. This weakness in Kansas follows Richmond's quadruple dip, Empire State's weakness, and Philly's major miss and in aggregate suggests a very weak ISM to come. Of course, all of this flies in the face of today's US PMI which beat expectations and pushed to recent highs.

While the seasonally adjusted, BLS-estimated version of the China-Japan conflict says that things are normalizing, following the arrival of a Japanese envoy visiting Beijing to "soothe relations" which have been frayed since September and have led to a collapse in Japanese exports to China, the unadjusted reality is once again different, and the latest update comes from Reuters which informs that Japanese authorities have detained a Chinese boat for fishing in Japanese waters, China's Xinhua news agency said on Thursday, "even as the two countries moved to defuse tensions that flared last year over disputed islands." It is now China's turn to "de-escalate" by returning the favor in kind.

Mary Jo White: White House, white collar, white shoe, white out, white wash? 

iBubble goes iPop bringing the iNaz down for the iFall. You know I just can't help myself...

Back in 2011, when day after day the true ugly nature of the Greek economy was being exposed for all to see well just after the second and before the third bailouts of the country were a fact, and as the decade-long obfuscation campaign to present the economy far stronger than it was in reality was crashing and burning, Greece decided to do something unique: it would put all the blame on the president of its newly created, independent Greek statistics service ELSTAT, accusing him of making the country look worse than it was (as if that was at all possible). Just like in the US, the blame would never reach those who were truly responsible, and instead would find a scapegoat in a person who was new to the scene, had no political ties and connections, and could not defend himself. Today, he has defended himself... but to no avail: he will be thrown under the bus, as the economic data lies and manipulation have resumed, only this time with someone to take the blame if only for a while. Then, in a few months when the lies are uncovered to have resumed, the charade can repeat itself all over again.

We have noted the odd cyclicality in macro data (and its leading effect on the market) and it seems Goldman Sachs has also noticed that something is different this time. For 15 years, the seasonal patterns in Goldman's macro index have been mild to totally negligible; but since 2009, something changed. As the chart below indicates, it really is different this time as the macro cycle has become extremely short and consistent (drop in H1, rise in H2) - and is evident not just top-down but bottom-up in payrolls and ISM for instance. Goldman expounds pages of statistical jiggery-pokery to show what we suspected - that this is not weather or seasonality effects, and is not just US (UK and Europe see same pattern of six month cycles); but appears driven by central-bank policy actions (which have been more concentrated in Q4/Q1). 2013 is playing out exactly as the last three years has - with a downdraft that is set to continue for the next few months - though they note that stability in oil prices this time (and recent expansion of easing efforts - Fed and BoJ) may shift the pattern. For now, it appears the macro cycle is becoming shorter and warrants concern as they are unable to find anything but 'reality' as a driver of this odd cyclical pattern as the real economy fades rapidly after each and every infusion of promises from the Central Banks.

... is not the economy, which as we pointed out earlier just crossed into "worst recovery ever" territory, or even actual layoff events. The reason is, as always when there is a massive "beat" in any US economic data, the same tried and true estimation magic out of the BLS appearing so conveniently at appropriate times, which estimated the claims numbers of 3 states, among which those of the most populous: California.