Archive - Nov 2013

While the noise and seasonality of the various measures of employment (or lack thereof) in the US make interpretation nigh on impossible (for all but the most linear extrapolators), many strategists recognize that their is a correlated (if not causative) relationship between the rate of unemployment and the S&P 500. However, as Bloomberg's Chase Van Der Rhoer notes, using the unemployment rate to predict the S&P 500 Index may be an oversimplification, but doing so yields surprisingly robust results and suggests the index is overvalued to the tune of 150 points.

Asian economic growth (or lack thereof) is often seen as the bellwether to global growth. While the following heatmap (covering 10 Asian economies across 8 measures of macro-economic health) has its fair share of red (growth upswing) indications, as Bloomberg's Rob Subbaramam notes, a closer inspection reveals a theme on extremely uneven economic performance - and is expected to become more prominent. However, based on a GDP-weighted perspective the heatmap would signal cooling in aggregate for Asian growth.

Still think houses are extremely affordable? Still think rents, especially for rental stream-securitized offerings by Blackstone et al to widows and orphans , will continue rising in perpetuity? Think again. As the following chart from Bloomberg Brief shows, mortgage payments as a % of average consumer incomes has risen to 40%, up from the higher 20% as recently as a year ago, is still rising, and is now back to levels last seen in 2008.

With better US labor market data, the key event in the upcoming week could well be the Yellen nomination hearing in the Senate Banking Committee. Yellen will likely deliver brief prepared remarks followed by questions from members of the committee. Yellen is expected to be relatively circumspect in discussing potential future Federal Reserve policy decisions in the hearings. Nonetheless, the testimony may help clarify her views on monetary policy and the current state of the economy. Yellen has not spoken publicly on either of these topics since the spring of this year. In addition to the nomination hearing, there will be a series of Fed speeches again, including one by Chairman Bernanke.

• Philippines Left Reeling in Wake of Storm (WSJ)
• Khamenei controls massive financial empire built on property seizures (RTRS)
• Race to Bottom Resumes as Central Bankers Ease Anew (BBG)
• U.S. Postal Service to deliver Amazon packages on Sundays  (LA Times)
• Obama Stocks Among Best After Re-Election as Rally Tested (BBG)
• Health-Law Rollout Weighs on Obama's Ratings, Agenda (WSJ)
• Twitter in Celebrity Spat With Facebook as Rivalry Builds (BBG)
• Iran deputy industry minister shot dead (AFP)
• Financier of Taliban-linked group shot dead in Pakistan (RTRS)
• Obama: The Lonely Guy (Vanity Fair)

Bond markets may be closed today for Veterans' Day, but equities and far more importantly, FX, are certainly open and thanks to yet another overnight ramp in the ES leading EURJPY, we have seen one more levitation session to start off the week, and an implied stock market open which will be another record high. There was little overnight developed market data to digest, with just Italian Industrial Production coming in line with expectations at 0.2%, while the bulk of the attention fell on China which over the weekend reported stronger Industrial Production and retail sales, while CPI was just below expectations and additionally China new loans of CNY 506 billion (below est. of CNY 580bn) even as M2 in line, should give the Chinese government the all clear to reform absolutely nothing. That all this goldilocks and goalseeked data is taking place just as the Third Plenum picks up pace was not lost on anyone.

When the US federal government was shutdown, China jumped in on the financial bandwagon and suggested that we build ‘a de-Americanized world’, which boils down to getting rid of the dollar as the international reserve currency.

The easiest way out...

...because it's always what's not said that matters...

... And why does the Fed, with $1.3 trillion in cash parked at foreign commercial banks or more than half of the reserves created under QE1, 2 and 3, continue to bail out non-American banks?

This week an article in Euromoney points out that liquidity in bond markets is drying up. The blame is laid at the door of regulations designed to increase banks' capital relative to their balance sheets. Furthermore, the article informs us, new regulations restricting the gearing on repo transactions are likely to make things worse, not only reducing bond market liquidity further, but also affecting credit markets. The reason this will be so is that in a repurchase agreement a bank supplies credit to non-banks for the period of the repo. One could take another equally valid point of view: the reason for deteriorating liquidity in bond markets is due in part to yields being unnaturally low.

As we remember the fallen this weekend... Prussia: Oh, f##k you France.

This is the single largest allocation of investor capital to stock based mutual funds since 2000: at the height of the Tech bubble. That year, investors put $324 billion into stocks. We might actually match that inflow this year as we still have two months left in 2013.

For almost two years (most recently this week), we have been vociferously explaining the dismal fact that "quantity" of jobs in this recovery is no match for dreadful "quality" of jobs as the "born-again jobs scam" contonues to roll on. Bloomberg's Matthew Klein has decided that nine pictures are better than a thousand words as he explains (in short sentences and simple charts) what the jobs report really means...