Archive - Jan 3, 2013

While some were concerned at the Fed's new quantitative targets as suggesting early tightening, it appears (from the FOMC Minutes) that those fears were somewhat warranted (with most seeing QE ending in 2013):

• *FED SAYS A FEW ON FOMC WANTED QE UNTIL ABOUT THE END OF 2013
• *FED: SEVERAL ON FOMC BACKED QE HALT OR CUT WELL BEFORE 2013 END
• *ALMOST ALL FOMC MEMBERS SAW POTENTIAL QE COSTS AS INCREASING

The punchline: "several" means more than just QE4 hater Jeff Lacker are turning hawkish. Though, even with the risks, they want moar. Pre-FOMC Minutes: ES 1460, 10Y 1.86%, EUR 1.3108, Gold $1674. Post: ES -6pts, 10Y +5bps, EUR -40 pips, Gold -$10.

Truly ironic - anyone receiving a REAL business/finance education would be able to run these rudimentary calculations themselves, thereby invalidating the very diploma they are seeking

Presented with no comment - but come on!!!

• *NASDAQ: UTP SIP PROBING AN ISSUE WITH STALE DATA ON UQDF/UTDF

BATS has declared self-help against another market center, or is actively investigating an issue. AAPL, GOOG, etc. all dead...

lots of crossed quotes from EDGE at Nasdaq spins back up

— Eric Scott Hunsader (@nanexllc) January 3, 2013

Stunning Nanex charts below

FOMC Minutes are due in 20 minutes and we find that investors are not paying much attention (yet). Recall, however, that asset markets rallied when the FOMC released the Statement and then sold off on fears that the FOMC was hinting at a quicker than expected pullback of Fed stimulus. The pullback logic was based on how rapidly the US economy is approaching 6.5%  or a read of the Statement/Press Conference comments that suggested that we might see some pullback from QE in 2013. The question is whether the Fed really meant to convey that type of hard conditionality or incipient stimulus withdrawal.

It seems that despite a plethora of posturing and rancorous rhetoric from splinter-group after splinter-group questioning every aspect of Boehner's banality; the Republican managed to squeeze through with no real problems (as even an apparent nemesis - Cantor - stood by his man's side).

• *BOEHNER HAS ENOUGH VOTES TO BE RE-ELECTED SPEAKER OF HOUSE

No 'secret ballot' this time, full "viva voce" roll call to follow - Boehner 220, Pelosi 192, Other (including Colin Powell) 15.

The USA now has two big drivers of debt.

Sometimes you just have to step back and laugh. Three times in the last two years, global stock markets have lurched higher four times (fed by a hosepipe full of central bank largesse) only to fall rapidly back to the fundamentally weak reality of the global economy. If ever there was a chart that summed it all up - and highlighted the inexorable optimism that this time it really is different - the current chasm between Global Manufacturing PMI and MSCI World suggests either stocks are off in fairy-land again or there is about to be the biggest surge in the global economy since 2009 (right as currency wars escalate and the debt-ceiling debate in the US threatens more fiscal drag).

We are sad to bring you the tragic news that Tim "TuboTax" Geithner, who has long made clear his plans to leave some time in early 2012, will be out before March, and in fact before the end of January as it turns out. From Bloomberg:

• GEITHNER SAID TO PLAN DEPARTURE BEFORE DEBT CEILING RECKONING

We are also confident readers will somehow be able to overcome the unprecedented sadness at this particular rat's departure from the Titanic, metaphorically speaking of course.

Looking at the trading action over the past three days we had a certain sense of deja vu... and then we placed it: the start to 2013 is merely a repeat of the Draghi and Bernanke "bailout" preventing the market from crossing the seemingly all too critical 1380 support, beyond which there may well be tigers...

After all, it’s clear at this point that the entire EU financial system is essentially held together via duct tape by the ECB. And with Spain and Greece’s banking systems once again in dire need of capital I’m very concerned that the next round of the EU Crisis is fast approaching and EU leaders are trying to start the damage control in advance.

The Cliff is dead; long live the Cliff.  Yesterday’s impressive market rally was a great way to kick off the New Year, but (as ConvergEx's Nicholas Colas notes) we do have 251 trading days to go before we can lock in those gains and dance a celebratory jig.  The market’s psychological pendulum swings between extremes of “Macro” and “micro” focus, and we shouldn’t take it for granted that the stock market’s positive take on the Fiscal Cliff negotiations portend a better economy, a stronger financial picture for the U.S., or any of the actual nuts-and-bolts which hold together the framework of corporate earnings and cash flows.  Colas' prime concern is that the increase in Social Security tax withholding by 2 percentage points – back to its pre-2011 12.4% - will take a chunk out of the spending power for tens of millions of households.  In the abstract, the amounts involved are not huge – perhaps 50 basis points of GDP.  But everything counts when GDP growth remains stubbornly subpar.

What are the core characteristics of the spoiled teenager? The conventional view is that the spoiled teen "gets everything they want." In my view, the key characteristic of Spoiled Teenager Syndrome is that risk, cost and consequence have been masked. This is a systemic point of view, meaning that the masking of risk, cost and consequence help us understand not just the eventual failure of spoiled teenagers but the eventual failure of every group or enterprise that masks risk, cost and consequence as a strategy to paper over an unsustainable Status Quo. This includes families, companies, states and nations. Masking risk, cost and consequence creates an illusory world that eventually crashes on the unforgiving rocks of reality. What is the Central Planning strategy being pursued by our Central State and the Federal Reserve? Masking risk, cost and consequence.

If ever there was a clarifying vision for what the world's most important fulcrum securities were - and perhaps highest beta - it is the Spanish and Italian equity markets (now that the Spanish and Italian bond markets are almost entirely under implicit control). What is perhaps most interesting about 2012's roller-coaster ride, driven by on-again-off-again angst from Europe, is that Spain and Italy closed the year with the biggest rises off their lows of the year; and in a fascinating twist, close the year with the biggest losses off their highs of the year - of any global stock market. So, depending on your timing as an investor, you either had the best 2012 or the worst 2012. We suspect 2013 will just intensify that beta.

You know it: our old friend the BLS's very own Arima X-12 makes a very unexpected appearance. Why a private entity, the ADP, which has no links to the Bureau of Labor Statistics is using the same adjustment process used by the government agency, to divine its final, seasonally adjusted number, especially when it refuses to disclose its unadjusted data, is anyone's guess. Or is the ADP number now nothing but a reinforcing surrogate to double the credibility of the BLS data, whose credibility in recent months has also hit unseen lows? It certainly would explain the recent revision in ADP methodology, and the fact that administration sycophant, Moody's Mark Zandi is now the "brains" behind this meaningless number (not to mention the resulting humiliation for all those who had though that ADP data, like that from the NAR, is even remotely credible).

Today's market moving news (or at least what should be market moving news) comes from hyper discounter extraordinaire, Family Dollar, whose stock is getting clobbered on what is merely the latest downward outlook revision (because as much as the Fed would like, reality, and cash flows, still do matter). Yet, while earnings not only for the $0.99 store but for the entire S&P will be atrocious something that apparently only selling copious amounts of VIX and buying up the ES in hopes of lifting all sinking boats can fix, it is the comments on the conference call that are most disturbing. To wit...