Archive - Dec 9, 2013

Technically, "High Yield" is no longer the appropriate name for the riskiest credit issuance since the average coupon has declined to where Investment Grade used to trade in the years before the New Normal. It is therefore only appropriate that as part and parcel of this record high yield bond issuance surge levering the riskiest companies to the gills with low interest debt, that there is also a scramble between underwriters to become as competitive as possible. And, sure enough, as Bloomberg Brief reports, "the underwriting fees disclosed to Bloomberg on U.S. junk bond deals average 1.276 percent for the year to date, the lowest since our records began. The prior low was set in 2008, when fees averaged 1.4 percent." 2008... that was when the last credit bubble burst on unprecedented demand for junk bonds: we are confident the bubble apologists will find some other metric with which to convince everyone that reality, and the Fed's Stein, have it all wrong.

Inflating serial asset bubbles is no substitute for rising real incomes. Why are we stuck with an economy that only generates serial credit/asset bubbles that crash with catastrophic consequences? The answer is actually fairly straightforward.

Silver prices are up over 1.5% this morning and gold +0.6% as the PMs play catch-up to Friday's post-NFP 'goldilocks' performance in stocks. Whether this is also fallout from Baidu's Bitcoin decision is unclear but gold did spike in early Asia trading.

The rate on the 10-year Treasury bond has risen dramatically. Is it priced in to stocks? Does it mean recovery, at last?

Having discussed market microstructure and the parasitic impacts of high-frequency-trading for the last 5 years, it comes as no surprise that the block-trade-sniffing algos have had very significant impacts on the way institutional investors trade now. As WSJ reports, in fact the big boys are conducting more "upstairs trades," in which deals are executed among big institutions, bypassing the broader market, because the proliferation of algorithmic trading and other structural issues, including the fragmentation of the market, are hurting their ability to get the best prices and execute large trades quickly. While the concerns aren't all new, big investors say the cat-and-mouse games are growing more elaborate - and counterproductive - by the day.

Japanese capital outflows have increased in recent months. Data out earlier today shows some country break down and we try to place that in a larger context. 

Market fragmentation in combination with the maker-taker market model, and in conjunction with a dramatic period of exchange “innovation,” had resulted in a new form of artificial edge.

Hidden deep inside the IRS' most recent annual report focusing on just the Top 400 Individual Tax returns, titled "The 400 Individual Income Tax Returns Reporting the Largest Adjusted Gross Incomes Each Year, 1992-2009" we find the definitive confirmation of just where the Fed's Wealth Effect has gone. As seen in the highlighted cell on the table below, just the top 400 individual tax returns account for a whopping 16% of the net Capital Gains tax paid in the US in all of 2009.

As bonds and stocks soar, and Europe's leaders continue to proclaim victory, despite Draghi's downbeat jawboning as EUR surges to growth-crushing levels, it is well known that the employment situation remains abysmal in the real economy. However, what is worse that the red-flashing-headlines of record youth (and total) unemployment is, as Bloomberg's Niraj Shah notes, 125 million people in the EU were at risk of pverty or social exclusion. According to Eurostat, that is 24.8% of the population. Almost half of Bulgarians faced economic hardship and Greece had the highest poverty rate in the euro area at 34.6% (though if Stournaras was to be believed this weekend, their problems are solved).

Today, we get December's second (out of three) Double POMO amounting to just about $5 billion. Any questions?

It would be tragic if it wasn't so hilarious. Nearly a year after we first suggested that Herbalife is the long of 2013, as a result of the epic short squeeze potential resulting from the Ackman announcement of his mega short,(promptly followed by the traditional Whitney Tilson piggyback) which it has been, rising from $25 to an all time high of $77.39 days ago, Herbalife has had enough of the so-called retail expert's (coughJCPcough) repeated allegations of fraud, and after taking a well-deserved victory lap costing Ackman hundreds of millions, has decided to hit him where it truly hurts - his clients. Bloomberg reports that Herbalife is approaching investors in Ackman’s hedge fund, suggesting they pull their money from the $12 billion firm.

The US data flow is relatively light which is typical of a post-payrolls week but it’s worth noting wholesale inventories on Tuesday and retail sales on Thursday. Importantly US House and senate negotiators are supposed to come to an agreement on a budget before the December 13th deadline. A lot of optimism has been expressed thus far from members of congress, and there are reports that a budget deal will be unveiled this week.

• Glass-Steagall Fans Plan New Assault If Volcker Rule Deemed Weak (BBG) ... "if"? The banks control the legislators and regulators...
• Cellphone data spying: It's not just the NSA (USA Today)
• Major tech companies push for limits on government surveillance (Reuters)
• Shanghai Warns Kids to Stay Indoors for Seventh Day on Smog (BBG)
• Protesters fell Lenin statue, tell Ukraine's president 'you're next' (Reuters)
• Everyone must be flying private these days: EADS to cut 5000-6000 jobs, close Paris HQ in restructuring (FT)
• Big Players Trade 'Upstairs' (WSJ)
• There’s no way to tell how many people who think they’ve signed up for health insurance through the U.S. exchange actually have (BBG)
• Slower China inflation reduces worries of tighter policy (Reuters)

Everywhere you look these days, central planning just can't stop reaping failure after failure. First it was Japan's Q3 GDP rising just 1.1%, well below the 1.9% in the previous quarter and the 1.6% expected, while the Japanese current account posted its first decline since of €128 billion (on expectations of a JPY149 billion increase) since January. What's worse, according to Asahi, Abe's approval rating tumbled to 46% in the current week, down from the low 60s as soon as early 2013, while a former BOJ member and current head of Japan rates and currency research, Tohru Sasaki, said that the high flying days of the USDJPY (and plunging of the JPY respectively) is over, and the USDJPY is likely to slide back to 100 because the BOJ would not be able to expand monetary easing by enough to repeat this year's "success." He definitely uses that last word rather loosely.