Archive - Nov 2013

Lately Bill Clinton has not been doing the president many favors. First, the "is" definition-challenged former president had some harsh words about Obamacare, and most recently in an overnight question-and-answer session before a standing-room-only crowd in a Beijing hotel ballroom, Clinton who was in Beijing for meetings with China’s President Xi Jinping as well as to promote the work of his New York-based philanthropic organisation, the Clinton Foundation, while withholding comments on Obama - whose approval rating has plunged to an all time low - refused to criticise Edward Snowden. Instead he said he believed it was "perfectly legitimate" for the US government to search “big data pools… to see if there are patterns of communication between certain numbers or sites and others known to be in the possession of terrorist groups”. But he went on, via AFP: “The question is when, if ever, is the government justified in going beyond the patterns to listen to telephone calls, read emails, read text messages, and who’s supposed to decide that? Mr Snowden obviously thought that it was excessive.”

Amid the Spanish FinMin's "concerns about the pace of the increase" in government debt, and PM Rajoy's confidence that the nation would exit the eurozone-fueled banking bailout by January, bad loans in the still disastrously-troubled nations have re-accelerated to an all-time record high of 12.68% of total loans. Mostly linked to the collapsed property sector, bad loans climbed by 6.9 billion euros from the previous month to an unprecedented 187.8 billion euros ($254 billion) in September. Having almost completed the drawdown of its 41 billion bailout - and with the situation fundamentally worse than ever (e.g. record high unemployment), Spanish bond spreads have collapsed to 250bps - their lowest in 29 months.

As Bitcoin soars over $600, another alternative to the fiat currency system is being monkey-hammered lower this morning as status quo support does everything it can to rotate stocks above the key levels we discussed earlier... because stocks rising on anything but fundamentals cannot be exposed for the liquidity-fueled excesses a rising precious metals price would unveil.

While the relentless multiple expansion (if not so much earnings growth and certainly not revenue contraction) looks set to push all three main stock indices over the key psychological levels of 16000, 1800 and 4000, with the all time bubble high on the Nasdaq increasingly looking like the next big target, the stock market mania has nothing on Bitcoin, which only yesterday crossed $500 for the first time ever, and as of this morning is already 20% higher, having just crossed $600 minutes ago. Which means that anything prices in Bitcoin has entered bear market in just the past day. How high BTC goes, is nobody's guess (Raoul Pal had a truly stunning price target): once the buying frenzy kicks in, step aside, especially since China is increasingly looking like it may be jumping on board the latest mania.

• What can possibly go wrong: Tepco Successfully Removes First Nuclear Fuel Rods at Fukushima (BBG)
• Japan's Banks Find It Hard to Lend Easy Money (WSJ)
• U.S. Military Eyes Cut to Pay, Benefits (WSJ)
• Airbus to Boeing Cash In on Desert Outpost Made Field of Dreams (BBG); Dubai Air Show: Boeing leads order books race (BBG)
• Sony sells 1 million PlayStation 4 units in first 24 hours (Reuters)
• Russian Tycoon Prokhorov to Buy Kerimov's Uralkali Stake (WSJ)
• Google Opening Showrooms to Show Off Gadgets for Holidays (BBG)
• Need. Moar. Prop. Trading: Federal Reserve considering a delay to Volcker rule (FT)
• Raghuram Rajan plans ‘dramatic remaking’ of India’s banking system (FT)
• SAC Capital's Steinberg faces insider trading trial (Reuters)

The only numbers that matter today are 16000, 4000 and 1800: those are the Fed's closing targets for the Dow Jones, the Nasdaq and the S&P. Following last night's Chinese euphoria which saw the Shanghai Composite surge by 2.87%, or up 61.4 to just under 2,200 on renewed hopes for Chinese reform by 2020, the Fed's price targets should all be quite easily achievable. And not even the rising home prices in 69 out of 70 cities year over year, and 65 over month - the same as last month, with new nome price inflation at 0.6% overall and 0.8% for the first tier cities, was able to put a dent in the reflationary spirits in the Mainland. Additionally, news that China would join the US and Europe in "adjusting" its GDP calculation method, which would add R&D expensing into the bottom line, and as a result boost the overall number, is, well, helping things. Finally, with today's POMO a rather whopping $3-$4 billion, it is only a matter of time before all three of the previously noted psychological resistances are promptly taken out by the Fed's open markets desk.

Confirms that one man opened fire in front of the SG towers. No injuries, the police are on site and investigating.

— Société Générale (@SocieteGenerale) November 18, 2013

If one was a foreigner visiting for the first time, one would think Space Available was the hot new retailer in the country. Thousands of Space Available signs dot the bleak landscape, as office buildings, strip malls, and industrial complexes wither and die. At least the Chinese "Space Available" sign manufacturers are doing well. The only buildings doing brisk business are the food banks and homeless shelters. However, reports like the recent one from SNL Financial – Branch Networks Continue to Shrink - are emblematic of the mal-investment spurred by the Federal Reserve easy money policies, zero interest rates, and QEternity... In a truly free, non-manipulated market the weak would be culled, new dynamic competitors would fill the void, and consumers would benefit. However, extending debt payment schedules of the largest zombie entities and pretending you will get paid has been the mantra of the insolvent zombie Wall Street banks since 2009.

China's Third Plenum has come and now truly gone, following the second, 20000 word "decision" which followed the spares initial communique, which contains much more promises and pledges about the future with a 2020 event horizon, so it is a fair bet that nothing of what was resolved will be implemented in a world that will be a vastly different from the one today, but one has to digest current news regardless. So for the sake of those who analyze such things as promises out of a centrally-planned communist nation, here are three takes on the third plenum, courtesy of SocGen, Bank of America and Goldman Sachs.

"The period of peak liquidity will remain in place for the foreseeable future," suggest Brown Brothers Harriman in a recent note, and as Reuters reports, for all the fevered speculation about when the Federal Reserve will begin scaling back its monetary stimulus, market volatility has been taking a leisurely nap, suggesting investors see no major shocks on the horizon to derail their bets. "We're not trying to follow the twists and turns of the very short-term investment cycle," confirms one wealth manager who will only change his strategy if the Fed "dramatically changed," its policies. The market's apparent ignorance of the ebb and flow of data surprises - both positive and negative - is clear as it has virtually no bearing on short-term yields, which have remained at historic lows thanks to the trillions of dollars of liquidity and zero interest rates from the Fed. "Fear not the Fed," advises BofAML, as the Fed's $85 billion-a-month asset purchase program trumps everything.

There has been a lot of Fanfare on the huge increase of oil production coming from the Bakken Field located in North Dakota.  There are many stories of people moving to the state to take advantage of the new "oil boom".  It seems like everyone is going there to start a new life and make it rich in one of the coldest areas in the United States. However, with all 'booms', comes the inevitable 'bust'.

In the near term, BofAML's Macneil Curry warns "we are growing a bit cautious/nervous, as US equity volatility is flashing a warning sign of market complacency that has often preceded a correction or a pause in trend." This 'red flag' is asterisk'd appropriately in the new normal with "to be clear, the balance of evidence is still very much US equity positive, but the near term downside risks have increased."

"Debt increases tail-risk," warns anti-fragility expert Nassim Taleb, "whether it's personal, corporate, or governmental." A rise in debt, he warns, implies nothing less than a rise in "the risk of catastrophe," and Taleb chides,  governments "should be focused in risk-management... instead of creating these risks." This brief Bloomberg TV clip cuts to the chase as the normally circumlocutory Taleb unloads on the perils of central banks, "Mr. Greenspan created tail risk by eliminating the business cycle," and since then tail-risks have accumulated with debt the "number one creator of these risks." In a fascinating phrase, Taleb notes, "corporate debt is benign," since in failure it turns into equity, "but government debt is another matter... for it turns into inflation or worse invasion..."