Archive - Jan 31, 2013

It is a well-known fact that nobody in Congress ever reads, or even skims, any law, and especially not the fine print, it passes until long after it has been enacted into law. It appears the same is just as true for the biggest pillar of support for the Obama administration: America's labor unions, whose liberal vote every election is instrumental to preserving the outflow side of America's welfare state. As it turns out, it was the same labor unions who enthusiastically supported the primary accomplishment of the Obama administration in the past 4 years, Obamacare, only to realize, long after it has become reality that, surprise, their healthcare plan costs are about to go up. And, as the WSJ colorfully summarizes, they are now "turning sour."

It would appear this morning's spending and income data (and the fact that US equity markets opened down) was enough for a de-correlated explosion in risk-assets in general. Gold has retraced its post-GDP spike (and Silver is close) but with the USD weaker (thanks to risk-lever of all risk-levers EURUSD) Stocks are surging and bonds tracking along as 10Y breaks back above 2.000% once again. A nicely engineered stop-run to ES 1500 and 10Y 2.00% or real money 'rotation' - you decide... The anti-correlation is typically unsustainable - so who will win today? Stocks lower or gold/oil higher?

Remember when the Chicago PMI was revised much lower in December, pushing it from 51.6 to some 48.9, as part of its annual revision. Well, the baffle with BS show must go on. Moments ago the PMI printed at a number that makes a complete mockery of all the regional Fed diffusion indices and the various confidence data, not to mention all other manufacturing data, miraculously soaring from 50.0 to 55.6, the highest print since April, the biggest monthly jump since October 2009 and a 5 sigma beat to expectations of 51.6: the biggest such beat in absolute terms since September 2011.

Our credit-based financial markets and the economy it supports are levered, fragile and increasingly entropic – it is running out of energy and time. When does money run out of time? The countdown begins when investable assets pose too much risk for too little return; when lenders desert credit markets for other alternatives such as cash or real assets.

No commentary necessary, although we will add one word: "unsustainable." We will also add that apparently not one economist could factor the simplest human behavioral response: "hey, lets pay ourselves dividends today to avoid the dividend tax hike tomorrow" into their models, which is why reality smashed the "estimate" by about 6 standard deviations. Ah, economists.

If Peter Schiff is selling gold, then maybe you should too!

One look at the headline December data and one would get the impression that millions of Americans had started dealing meth out of some New Mexico RV, as personal income exploded by the most in 8 years, soaring some 2.6% in December to $13.936 billion. And since the surge in income, which was expected to rise some 0.8%, was hardly matched by a comparable boost to spending which missed expectations of 0.3%, rising just 0.2% - somewhat paradoxical considering the biggest boost to the otherwise negative Q4 GDP print was precisely this: spending and consumption, meant that the personal saving rate (which is merely a function of income less spending) soared to 6.5% or the highest since May 2009 - superficially an indication that consumers are hunkering down in expectation of something very bad.

While the popular meme is that jobless claims have been indicating an albeit modestly growing economy, it would appear that facts simply do not reflect that reality. Jobless claims surged this week, missing expectations by the most since Sandy as seasonal affectations are in the rear-view mirror. For 13 months, we have meandered around a flat-line initial claims number in the 365k range - and we remain there. What is most troubling about this total catastrophe that occurred in Emergency Unemployment Compensation. After last week's record-breaking plunge of over 350k, this week saw a surge of over 418k added to the EUC rolls - the biggest 2-week jump in two months. The noise in this data remains impressive and yet it is the correlated macro data that appears to be at the heart of so many people's belief in the equity market's strength...

Germany and France have a long and illustrious history of "competing" with each other, sometimes peacefully, sometime not. More importantly, the two countries are, incorrectly, considered to represent the stability "core" of the Eurozone. And perhaps that is somewhat true in the context of all the other peripheral European nations, where things are so bad we have run out of adjectives to describe the plight of the people and the economic collapse. Yet, at least according to two metrics: jobs and cars - when it comes to the endless Germany vs France match there is no contest.

• Risky Student Debt Is Starting to Sour (WSJ)
• Political scandal in Spain as PP secret accounts revealed (El Pais)
• New York Times claims Chinese hackers hijacked its systems (NYT)
• Spain's Rajoy, ruling party deny secret payment scheme (Reuters)
• Iran crude oil exports rise to highest since EU sanctions (Reuters)
• BlackBerry 10’s Debut Fizzles as U.S. Buyers Left Waiting (BBG)
• Costs drag Deutsche Bank to €2.2bn loss  (FT)
• And the gaming of RWA continues - Deutsche Bank Beats Capital Goal as Jain Shrugs Off Loss (BBG)
• More fun out of London - Barclays, RBS May Pay Billions Over Improper Derivatives Sales (BBG)
• Hagel to face grilling by Senate panel on Mideast, budget (Reuters)

Remember all those soaring German confidence indices that said ignore the negative GDP print and focus on a future so bright, ze Germans've got to wear Zeiss? Appears the confidence may have been a tad massaged upwards because following a spate of weak corporate results out of Europe's growth dynamo, the German HDE retail association said Christmas sales for November and December were down some 0.7% from the prior year. Specifically German retail sales plunged -1.7% from November on expectations of a modest -0.1% decline, while on a year over year basis December imploded a whopping -4.7% vs expectations of -1.5%. Did the Germans blame the weather of lack of government spending, or maybe say to only focus on the positive aspects of the report (if any)? No. They were not girlie men about it.  In now traditional news, Greek retail sales in November followed suit and plunged just a tad more than in Germany imploding by some -16.8% in November. Remember: once they hit 0 they can only go up. But the biggest news certainly was Germany, whose economy continues to deteriorate and is probably what spurred Buba president Jens Weidmann to say that ongoing bailouts could threaten the strongest members.

Nice try, but they still haven't addressed margin compression. They need a new business model to counter Android's "less than free" approach. Watch their chart imitate the cliff dive, once again!