Archive - Dec 30, 2013

For the second time in its brief life as a publicly-traded stock, the latest exhibit in 2013's FOMO meme has hit a bear market. Twitter has dropped 20% from its all-time high and must - must - be a bargain here?

From Paula Dean and twerking to Drones and Duck Dynasty with a peotic sprinkling of Mandela, Thatcher, "if you like it you can keep it", and government shutdown; UBS' avuncular floor director Art Cashin unleashes his latest ode with a subtle reminder of the most important 'word' for 2013 - FOMO - "fear of missing out."

As we observed two weeks ago, Europe's year-end liquidity situation is dire and deteriorating. On December 17, the ECB failed to sterilize its cumulative €184 billion in SMP bond purchases by a whopping €32 billion, the second such failure in one month. Since then things have gotten progressively worse, as banks, already scrambling for year-end liquidity, and eager to preserve their windows well-dressed by having crisp European currency on their balance sheet instead of sterilized ECB bonds on December 31, have led to two more sterilization failures, first a week ago when 103 bidders only indicated interest for €140 billion of SMP bonds, leaving a €39 billion shortfall, culminating with the sterilization failure from this morning, when a tiny 89 banks submit bids for only €104.8 billion in ECB purchased bonds, leaving a record unsterilized gaping hole of €74 billion.

For the second time in a week, the market is running (not walking) away from the USD. Despite all the equity market exuberance over the taper, the USD is now unchanged from the FOMC decision and in relative free-fall for the world's reserve currency - on a scale we saw during last Friday's craziness... Treasuries are modestly bid this morning, equities are flat and precious metals are lower (thogh gold is recovering as the USD sinks)...

The release schedule is relatively light in the current week, without major central planning meetings. Nonetheless, there will a number of speeches from US FOMC members at the annual American Economic Association meeting. In terms of economic data releases we have manufacturing surveys from the US (Tuesday and Thursday), China (Wednesday and Thursday) and Europe (Thursday and Friday). On balance, slightly softer prints are expected for most of these releases when compared to the previous data points. However, consensus expects US consumer confidence to pick up significantly in December.  Also of interest: harmonized inflation numbers from Spain and Italy on Friday, as low inflation remains an issue for ECB policy. Consensus expectations are for a small increase in the former and decrease in the latter.

Austerity and crisis are not negative--they are the only dynamics that force smart thinking and the re-alignment of values, resources and strategic goals. Trying to fund everything to please or placate every powerful constituency ends up failing everyone in catastrophic fashion.

Just barely hours after we covered the second deadly explosion in the southern Russian city of Volgograd in as many months, this time in its packed train station, the city was rocked by yet another suicide bombing in what is clearly a terrorist campaign to spook Russia and its Sochi winter games visitors just over a month ahead of the olympics.  This time, a bomb ripped apart a trolleybus killing all 14 people aboard, and wounding another 28 in the second deadly attack blamed on suicide bombers.  According to Reuters, "Investigators said they believed a male suicide bomber set off the blast, a day after a similar attack killed at least 17 in the main rail station of a city that serves as a gateway to the southern wedge of Russian territory bounded by the Black and Caspian Seas and the Caucasus mountains." Even Putin, so far non-committal, is starting to take these daily escalations seriously: "President Vladimir Putin, who has staked his prestige on February's Sochi Games and dismissed threats from Chechen and other Islamist militants in the nearby North Caucasus, ordered tighter security nationwide after the morning rush-hour blast."

• Americans on Wrong Side of Income Gap Run Out of Means to Cope (BBG)
• Michael Schumacher battles for life after ski fall (Reuters)
• Professors for hire: Academics Who Defend Wall St. Reap Reward (NYT)
• Chinese police kill eight in Xinjiang 'terrorist attack' (Reuters)
• How to Prevent a War Between China and Japan (BBG)
• Unemployment Benefits Lapse Severs Lifeline for Longtime Jobless (BBG)
• Japan's homeless recruited for murky Fukushima clean-up (Reuters)
• China Local-Government Debt Surges to $3 Trillion (WSJ)
• How unexpected: Britons less inclined to pay down mortgage debt (Reuters)

Heading into the North American open, stocks in Europe are seen broadly lower, with consumer services seen as the worst performing sector, where the UK based retailers have underperformed amid fears that a combination of heavy discounting, along with bad weather, impacted heavily on overall performance. Of note, the SMI index in Switzerland underperformed throughout the session, with Swatch shares under pressure after officials were unable to say what caused the fire at the weekend at the co.'s ETA unit factory in Grenchen, which destroyed one workshop and damaged another. As expected, traded volume is far below the daily avg and this trend is expected to continue this week.  The euro is stronger against the dollar. Japanese 10yr bond yields rise; Italian yields decline. Commodities little changed, with silver, gold underperforming and natural gas outperforming. U.S. pending home sales, Dallas Fed manufacturing data due later.