Archive - Nov 5, 2013

A little over a year ago, we wrote an article titled:  You Know You Are a Conspiracy Theorist If… It proved a useful description of the varied afflictions that might overcome your fellow man on the path toward becoming a sentient human being. These include critical thinking, the enjoyment of nature and the distrust of mainstream media. Well now we have the United States Government Terrorist Identification Chart. This should further aid you in identifying if there are enemies in your midst. Pay close attention serfs.

Exactly as anticipated, T-Mobile is pulling the US wireless industry into a game of [margin]compressed chicken! Google's negative margin strategies exacerbate this problem - boon for consumers.

European unemployment hits a new record high. China's see-saw taper no taper talk. And the beginning of US Housing Bust 2.0

Despite the ubiquitous BTFATH dip in stocks, Treasury yields continue to press higher from Rosengren's earlier comments. Combining overnight concerns about China's relative 'tightening' and Goldman's views that Taper may be sooner than many expect (even if it is counter-balanced with more dovish forward-guidance), bonds seem less than amused at the prospect of slower flow sometime soon. 30Y yields are back over 3.75%, the highest in 3 weeks and jumping the most in 2 months.

"The major themes are unchanged – anaemic global growth/mediocre fundamentals, what I consider to be extraordinarily and dangerously loose (monetary) policy settings, very poor global demographics, excessive debt, an enormous misallocation of capital driven by the state sponsored mispricing of money/capital, and excessive financial market/asset price speculation at the expense of any benefit to the real economy. As I expect marginal higher highs before the big reversal, and while my target for this high in the S&P over the next five months remains anchored around 1800, an ‘extreme’ upside target could see the S&P trade up to 1850. Put it another way – before we see any big risk reversal over 2014 and 2015, we need to see more complacency in markets. I am looking – as a proxy guide – for the VIX index to trade down at 10 between now and end Q1 2014 before I would recommend large-scale positioning for a major risk reversal over the last three quarters of 2014 and over 2015.... Beyond Q1 2014, the longer term will all likely be driven by the growth data and the credibility of policymakers and what seems like an all-in ‘bet’ on QE as the solution to our ills."

"The Fed is playing a very dangerous game," Starwood Capital's Barry Sternlicht warns,"and they need to stop." Sternlicht has quadrupled his firm's net worth in this time and, to the incredulity of the CNBC anchors, warns, "this is bad, this is a heroine addiction.. and now they are printing more money than the deficit." The outspoken CEO of the $29 billion fund, noted "all my friends who are money managers.. are much closer to the sell button than they ever were before," adding that "everyone's holding cash," since if they start to get nervous "volatility will come back instantly." Simply put, he concludes, "you know when this ends, it's gonna get ugly."

Deutsche's Jim Reid has been on quite a flight of fancy in the past few days. His latest comment, mixing the metaphysical and monetary, is merely the latest indication showing just how ubiquitous the Fed's influential tentacles have spread. "We are not alone. After going through the FT this morning it’s clearly a bit quiet as the story that has most caught my attention is the one suggesting that new research has estimated that there are more than 20bn Earth-like planets in our Milky Way with temperatures that could sustain life. A remarkable number. Maybe as we speak 5bn of them are contemplating tapering, 10bn have already tapered and 5bn are simply having too much fun to care!"

In the worst possible news for the wealth effect and stocks (recall JPM's warning yesterday), moments ago the Non-manufacturing ISM printed at 55.4, beating expectations of a 54.0 print and above September 54.4 number proving once again that all the fire and brimstone about the government shutdown having an adverse impact on the US economy was nothing but hollow propaganda. As for the actual print, this is horrible news for those betting on ongoing US economic collapse as it means the Fed may, just may, reduce its $85 billion in monthly flow some time in the future. Sure enough, stocks kneejerked lower, as did gold and the EURUSD, while 10 Year yields spiked to 2.664%. And while the bulk of internal numbers also rose, those who live and breathe the destruction of the US economy to send the S&P to recorder highs, can find solace in a New Orders print of 56.8, down from 59.6, which was the lowest number since July.

In brief: in the past year, the poorest 23.3 million Americans earned 36% less than the richest 2,915 Americans (and less than twice more than the richest 166).

Overnight weakness from China's 'taper talk' has been exaggerated this morning as Fed's Rosengren, speaking on CNBC, warned that while inflation was not a problem, the costs of QE were a potential problem and risk to financial stability.

*ROSENGREN SAYS FED MUST BE ATTENTIVE TO POSSIBLE QE COSTS
*ROSENGREN SAYS `WE'RE IN UNUSUAL TIMES' WITH FED POLICY

This somewhat hawkish tone sent the USD higher in a hurry, Treasury yields higher and US equities lower as the 'market' reacts to every headline once again.

Over the past year, pictures of China's unprecedented air pollution have been seen around the world (for a sample see here and here), Chinese smog has been exported to Japan, and there is even a dedicated hourly twitter update looking at the quality, or lack thereof, of Beijing air. As such, it was only a matter of time before the tragic consequences of China's unprecedented and unplanned scramble to industrialize started manifesting themselves. This happened overnight when an eight-year-old girl has become China's youngest lung cancer patient, reports said, with doctors blaming pollution as the direct cause of her illness. The girl, whose name was not given, lives near a major road in the eastern province of Jiangsu, said Xinhuanet, the website of China's official news agency.

The extreme experiment of current US monetary policy has evolved (as we noted yesterday), from explicit end-dates, to unlimited end-dates, to threshold-based end-dates. Of course, this 'threshold' was no problem for the liquidty whores when unemployment rates were extremely high themselves, but as the world awoke to what we have been pointing out - that it's all a mirage of collapsing participation rates - the FOMC (and sell-side strategists) realized that the endgame may be 'too close'. Cue Goldman's Jan Hatzius, who in today's note, citing two influential Fed staff economists, shifts the base case and forecasts that the Fed will lower its threshold for rate hikes to 6.0% (and perhaps as low as 5.5%) as early as December (as a dovish forward-guidance balance to an expected Taper announcement).

While the Obamacare website rollout may be a huge slap in the face of government (in)efficiency and (dis)organization (healthcare.gov has now joined the ranks of all other New Normal "full-time" workers by working part-time following a daily maintenance shutdown from 1 am to 5 am), the reality is that sooner (unlikely) or much later it will be fixed. And while the realization that the Unaffordable Care Act is just that, and will soak up far more cash from the majority of the population will be a slap in the face of all who never understood that socialist Ponzi schemes always cost far more in the bitter end, it is nothing that America's favorite pastime can't resolve - paying on credit. Which means that the biggest threat to Americans as a result of Obamacare is neither the website, nor really who foots the bill (ask future generations), but the actual impact on services, and as CBS reports the next shock to brace for is the sudden drop off in healthcare providers as an imminent "explosion of demand for doctors and services" mean a looming doctor shortage is just around the corner.

• China premier warns against loose money policies (Reuters)
• Brussels forecasts tepid Eurozone growth (FT)
• SAC Case Began With Informant’s Tips on Cohen, Rajaratnam (BBG)
• Dirty Munich Home’s Nazi Loot Estimated at $1.35 Billion (BBG)
• Mortar hits Vatican embassy in Damascus, no casualties (Reuters)
• India Launches Mars Mission (WSJ)
• Lael Brainard to leave Treasury, heading to Fed (FT)
• U.S. Takes Aim at 'Forced' Insurance (WSJ)
• Wife of Jeff Bezos attacks book about Amazon (FT)
• Fall of Brazil’s Batista embarrasses President Dilma Rousseff (FT)
• The One Thing People Still Really Like About BlackBerry (BusinessWeek)

The US and the National Security Agency may well have just dug their own grave where the internet is concerned.