Archive - Nov 2013

Bob Shiller is one of the winners of this year’s Nobel Memorial Prize in Economic Sciences, which makes him acutely aware of criticism of the prize by those who claim that economics – unlike chemistry, physics, or medicine, for which Nobel Prizes are also awarded – is not a science. One problem with economics is that it is necessarily focused on policy, rather than discovery of fundamentals. Shiller notes that economics is somewhat more vulnerable than the physical sciences to models whose validity will never be clear, because the necessity for approximation is much stronger than in the physical sciences, especially given that the models describe people rather than magnetic resonances or fundamental particles. People can just change their minds and behave completely differently. But all the mathematics in economics is not, as Taleb suggests, charlatanism.

Presented with no comment...

On a below average volume day, there were three intriguing divergences across asset classes today. Thanks to CVX (and a few others including MSFT) the megacaps of the Dow Industrials lurched to new record highs as the Transports dropped their most in a month and the momo names (led by TSLA) took high-beta NDX and RUT down on the day. Another divergence was oil (which surged notably) and copper (which was pummeled) as gold and silver limped higher (on weaker USD ahead of tomorrow's rumored 'no cut' ECB meeting). The last notable divergence was in the Treasury complex where the long-bond continues to push higher in yield while 'forward-guidance' belief is dragging the front-end lower in yield (5s30s now 10bps steeper on the week). The short squeeze of the "most shorted" names into last night's TSLA earninsg appears to have imploded and today saw "most shorted" names dropped the most in a month...

The market has only been this expensive a handful of times in the last 100+ years. Every time we’ve been closer to a market top than a new bull market run.

If ever there was a symptom of the instant gratification meme of the new normal (why wait when you can have it all now?), it is 'vice'. That is why Southbay Research's Vice Index (composed of prices paid, volume, and frequency of sales in liquor sales, gambling, and prostitution) is so worrisome, as WSJ reports, "it's signalling that consumer spending growth is about to drop and stay subdued for a few months." Southbay's Zatlin notes that measuring this kind of discretionary spending provides a window into the true state of the economy - which fits with recent macro data on retail sales (and forecasts for the holiday season as hope of the 'second-half' recovery fade quietly into next year.

Venezuelan President Maduro is in the wires confirming that all is well in the nation - nothing to see here...

*BLACK MARKET FX RATE IS HARMING VENEZUELA ECONOMY: MADURO
*VENEZUELA TO START OPERATION AGAINST SPECULATION, MADURO SAYS

Yep, so after a 475% rise in the Caracas Stock Index YTD, he sees 'speculation' and will announce some 'economic fixes'... this should be good...

Over the past year there has been some confusion about whether Ben Bernanke has managed to not only completely break the stock market (which, if one harkens back to hallowed antiquity used to discount good or bad news in the future, and "trade" accordingly), but also invert it fully. The chart below from Guggenheim will once and for all put any such confusion to rest. As Guggenheim's Scott Minderd points out "The 52-week correlation between S&P 500 returns and the change in the Citigroup Economic Surprise Index has plunged from 0.45 to -0.13 over the past 12 months. A negative correlation indicates that weak U.S. economic data tends to push equity prices higher, while strong economic data tends to send them lower."

With only 3 of 70 economists surveyed by Bloomberg expecting a rate cut at tomorrow's ECB press conference, Credit Agricole's Frederik Ducorzet suggests seven signals to watch for from Draghi that could signal ECB easing ahead. Crucially, as BofAML puts it, "further euro appreciation is a problem, particularly for the periphery," and with empirical Phillips curves in hand, there is little room for further compensation via wage reduction. In other words, if Draghi stands pat (or doesn't offer up some sacrificial forward guidance hint of easing being likely), the drumbeat of social unrest in the periphery will grow ever louder.

Chris Martenson explains why it's easier to start than to stop quantitative easing: "A lot of what we hear is the Fed's exit strategy … what most people don't know is that this thing doesn't work in reverse very well at all." In this excellent interview with RT, Martenson explains why Bernanke & Co. found it relatively simple to start their money printing, but why they will have a hell of a time getting off the runaway QE train.

Like Traders Already Manipulate Exchanges for Commodities, Carbon Credits, Derivatives, and Everything Else

Applications for mortgages for the purchase of a home plunged at nearly the fastest pace in 9 months this week, dropping to their lowest since the Christmas week 2012 - and lowest since February 2012. Now down over 20% from their May highs, the plunge is a problem - since as BofA's CEO noted earlier:

*MOYNIHAN SAYS HOME PURCHASES, NOT REFI, BOOST THE ECONOMY

So just another indicator that all is not well in the 'economy'. What is perhaps most worrisome is that this is the lowest level of mortgage purchase activity for this time of year in a decade.

Wondering who you will flip your IPO allocation to? Meet 56-year-old admin assistant, Deborah Watkins... "I messed up by not buying any Facebook, so I want to get some Twitter."

While the public's attention has been focused recently on revelations involving currency manipulation by all the same banks best known until recently for dispensing Bollinger when they got a Libor end of day print from their criminal cartel precisely where they wanted it (for an amusing take, read Matt Taibbi's latest), the truth is that manipulation of FX and Libor is old news. Time to move on to bigger and better markets, such as physical commodities, in this case crude, as well as Interest Rate swaps. And, best of all, the us of our favorite manipulation term of all: "banging the close."

Forcing young workers to pay into a Ponzi Scheme is generational injustice on a vast scale.

Yes... a rating agency - the same entity that enabled the last housing market crash - just warned of a housing bubble. How the times have changed - maybe it is different this time?