Archive - Nov 2013

Expenditure on social benefits in the EU fell to 29.1% of GDP in 2011 from 29.7% in 2009, Eurostat said yesterday. However, do not feel too bad for the broad European social state. While France (as one might expect) nears the top of the list with over 33% of GDP spent on "social benefits", Bloomberg's Niraj Shah notes that it is Denmark that spends the most on welfare at 34.3% of GDP, and Latvia spent the least, 15.1%. Of course, in the new normal, as in the US, retirees accounted for the majority of the trasnfer payments with an average of 46% of total expenditure while unemployment benefit accounted for 6%. Interestingly, Greece nears the top of the list with almost 31% of GDP spent on welfare.

We earlier discussed Bill Ackman's lengthy interview on Bloomberg TV during which he faced up to the $500 million losses (more now) from his Herbalife position, and that it is "not a trade" for him but "will take it to the ends of the earth." However, it seems his comments that "Herbalife longs are all 80-year-old billionaires" pissed off Carl Icahn enough to warrant his wrath. Icahn called in to Trish Regan and exclaimed, "I fail to understand how Bill Ackman, whom I haven’t spoken to for years, nor do I intend to speak to, would know what I am or am not committed to. I continue to believe Herbalife has a great future, and in my opinion many of the things Ackman says about it are simply the rantings of a sore loser." The stock remains +5% and back near recent record highs.

The math just shot craps.

"I cannot look at myself in the mirror; everything I have believed in I have had to reject. This environment only makes sense through the prism of trends."

- Hugh Hendry

The following graphic was put together by the folks at Promontory Financial and is extremely telling. It looks at three ways in which a U.S. citizen might choose to go about sending a $1,000 downpayment to Europe for the purpose of renting a vacation home. They put Bitcoin side by with with a traditional bank wire as well as a credit card transaction. The results might surprise you...

For anyone who still suggests, incorrectly, that Larry Summers was the "wrong" choice for Fed Chairman just because he would promptly end QE the second he was elected as the erroneous popular meme goes, we have one soundbite from his recent Bloomberg TV interview refuting all such speculation: "if you had to say, should we have used this tool or should we not have, I think the answer is overwhelming that we should have." He had some other amusing logical fallacies (including discussing whether the market is in a bubble) all of which are transcribed below, but the best one is the following: "I think it does bear emphasis that the people who were most appalled by it are the people who have been predicting hyperinflation around the corner for four years now and they have been wrong at every turn." And let's not forget that "subprime is contained" - until it isn't. Then again, the last time we checked, the history on the biggest monetary experiment in history - one in which both the Fed and the BOJ are now openly monetizing 70% of gross bond issuance - has certainly not been written. Finally, in the off chance Summers is indeed correct, what history will instead say, is why instead of monetizing all the debt from day 1 of the Fed's inception in 1913, and thus pushing the stock market into scientific notation territory, did the Fed leave so many trillions of "wealth effect" on the table?

There comes a time in every bubble's life when participants who have a stake in its continuation have to employ ever more tortured logic to justify sticking with it. We have come across an especially amusing example of this recently. “Good news!” blares a headline at CNBC “Bubble concern is at a 5-year high”. Ironically, since at least 1999 if not earlier, the source of this headline has been referred to as 'bubble-vision' by cynical observers (or alternatively as 'hee-haw'). It definitely cannot hurt to be aware of market psychology and sentiment. However, the argument that a surge in searches for the term 'bubble' on Google can be interpreted as an 'all clear' for a bubble's continuation seems to have things exactly the wrong way around. The misguided behavior of financial market participants that can be observed during bubbles is merely mirroring the clusters of entrepreneurial error monetary pumping brings about.

It's NOT Just the SEC ... And It's NOT Just Passively Watching ...

In short: from January to September (we exclude the October 204K print as there is no matching JOLTS number yet) the average monthly jobs gain per the Non-farm Payrolls report is 184K. However, when looking at the implied job gains per the JOLTS Net Turnover, this number is a far more disturbing 150K, some 20% lower.

And yet gold still seems to be stuck in a downtrend. This week's sell off may have been due to trading shenanigans on the COMEX and many, including the UK Financial Regulator are asking questions as to whether gold price rigging is taking place.

Aside from the impressively calm demeanor of the gentleman holding the video camera, this disturbing clip of the Washington Tornado's power offers a helpful (if not terrifying) analogy for how quickly calm serene surroundings (e.g. stock markets) can be "freaking destroyed" almost instantly by an external force.

With regulators finally catching on that banks are manipulating every asset class, the largest of them all - foreign exchange - has come under scrutiny. Most specifically, there is considerable attention being paid to manipulation at the "London Close" around 11amET each day. Judge for yourself - see anything 'odd' around that time of day?

Herbalife shares are soaring this morning. The reason, it seems, is unclear; but Bill Ackman's appearance on Bloomberg TV to press his shorts a little more may just have emboldened those looking to squeeze the asset manager:

• *ACKMAN: HERBALIFE LONGS DID PRETTY GOOD JOB OF SHORT SQUEEZING
  
• *ACKMAN SAYS HE'S LOST $400M TO $500M ON HERBALIFE SHORT
  
• *ACKMAN SAYS `LOTS OF WAYS WE CAN BE SUCCESSFUL' ON HLF
  
• *ACKMAN SAYS HE'LL TAKE HERBALIFE BET 'TO THE END OF THE EARTH'

Ackman added that he "skeptical" of Icahn's long-term interest, and "puzzled" by Stiritz' motivations. It seems - other than fear-mongering - the stock is rising on the basis Ackman has nothing new to add...

OK all you Zero Hedge Tin Cats, it's November 22, 2013!

Just out from Reuters:

• EURO ZONE COUNTRIES CONSIDERING CHEAP LOANS AS INCENTIVE FOR GOVERNMENTS TO ENACT ECON REFORMS-DOCUMENT
• TO QUALIFY, COUNTRIES WOULD HAVE TO DRAW UP LEGALLY BINDING PLAN FOR REFORM APPROVED BY MEMBER STATES-DOC
• LOANS WOULD NOT BE LINKED TO COST OF REFORM BUT MEANT AS GENERAL SUPPORT FOR THE ECONOMY-DOCUMENT
• LOANS FOR REFORMS WOULD NOT BE AVAILABLE TO COUNTRIES RUNNING EXCESSIVE MACROECONOMIC IMBALANCES OR UNDER BAILOUT-DOC

In other words, "encourage" debt-cutting reforms by dangling the carrot of even more debt. But the punchline:

• NO FIRM PLAN YET HOW TO FINANCE THE LOANS, WHICH COULD BECOME THE NUCLEUS OF A EURO ZONE BUDGET-DOC

Oops.