Archive - Dec 2013

As the non-government worker 'slaves' away, working 80 hours straight at Toys'r'Us, or earning an 'unlivable' wage at McDonalds, President Obama as used an executive order to activate a 1% pay raise for all government workers. As the WSJ reports, the 4.4 milion federal employees are receiving their first across-the-board pay bump since a 2% increase in January 2010 (though notably agency directors must meet this cost within their existing budgets - not collecting any new funds to pay for it). Of course, even by government statistical standards, this is still not keeping up with inflation, but hey, it's better than nothing.

The chart below looks at the Year over Year change in Durables ex transports for the month of November across 4 different years. What immediately stands out is that while 2010 through 2012 acted just as expected, with SA and NSA data almost identical, in 2013 the data... diverged. In fact, the divergence between the SA and NSA was inexplicably over $2.2 billion. What does that mean? Well, if the SA number was accurate, and in line with what the NSA number predicted, Durables Goods ex-transports would have declined by -0.5% instead of rising by 1.2%. The same would apply to all other key categories from the report. In other words, when all else fails, and when Unadjusted data points to a decline, just do what the government's Arima X 12 model is so good at doing, and adjusted the data.

From its peak in October 2012, mortgage applications have collapsed 66% and this week printed at new 13-year lows. Since rates started to crack on Taper talk in May 2013, mortgage applications have fallen in a one-way street (but hey, rising rates won't affect the housing recovery, right? remember 15% mortgages... as the usual bullshit meme goes, entirely missing the shift in house prices, affordability, and marginal price-setter). Of course, the usual 'seasonal' effect wil be blamed and recovery will re-blossom in the new year... except, seasonally this is among the worse drop in the last few weeks of the year in the last decade. Adding further salt to the wound of wealth generation, the refi index has dropped to a fresh 5-year low as the home equity ATM remains shut (having dropped 73% in the last few months).

That it has been one of the most lacklustre shopping seasons in recent years has already been repeatedly covered, with average holiday spending expected to decline for the first time since the Great Financial Crisis of 2008, all this despite record promotions and an ever earlier start to Black Friday. However, while the early start to shopping season has missed expectations, driven primarily by an unprecedented weakness in traditional bricks and mortar outlets, there was some hope that the last stretch into Christmas and the New Year would provide a much needed, last minute bump. Those hopes were dashed last night when Shopptertrack reported that retail traffic plummeted by an unprecedented 21% last week, and in-store sales decreased 3.1% from the year before, dashing retailers' hopes that the final stretch before Christmas would offset soft sales numbers earlier in the holiday shopping season.

What time can you go home today? Find out with the schedule of early market closures below:

Floor Trade:

• CME/CBOT - Early Close: Equities - 12:15PM Central; Interest Rates, FX, Commodities - 12:00PM Central
• NYMEX - Early Close: 1:30PM Eastern
• COMEX - Early Close: 11:30AM Central
• NYSE - Early Close: 1:00PM Eastern

A little followed development is revealing about the emerging financial architecture and the role of the dollar.  A dispassionate discussion.  

• Edward Snowden, after months of NSA revelations, says his mission’s accomplished (WaPo)
• Japan’s Nikkei 225 Extends Six-Year High on U.S. Data  (BBG)
• Retailers blend stores, e-commerce to snag holiday stragglers (Reuters)
• Storm wreaks havoc in Britain, France ahead of Christmas (Reuters)
• Big Rally to Pump Up Wall Street Bonuses (WSJ)
• Obamacare Sign-Up Extended as Record 1 Million Use Site (BBG)
• Merkel Hits Wall With Europe Fix (WSJ)
• Boaz Weinstein Loses for Second Year as European Bet Sours (BBG)
• UniCredit has reached an agreement to sell almost €1 billion in nonperforming loans to Cerberus (WSJ)
• U.S. mortgage applications fall as refinance hits five-year low (Reuters)
• Cohen Said to Have Warned Friend About Possible Federal Investigation (NYT)
• ‘Duck Dynasty’ Dad Risks $500 Million With Gay-Sin Remark (BBG)

While shortened Christmas Eve trading is traditionally the lowest volume day of the year, based on recent trends it may be difficult for today's action to stand out from the landscape thanks to an ongoing volume collapse, which however should make the even more traditional low-volume melt up that much easier. Sure enough, futures are modestly higher driven by their favorite signal, the EURJPY. Not surprisingly there has been particularly light newsflow with market closures in Germany, Italy and Switzerland in addition to early market closures for UK, France, Netherlands and Spain. Those markets that are open are trading in positive territory with the FTSE 100 being supported by BSkyB following an upbeat pre-market report for the company and their customer base, whilst the IBEX 35 is being supported by the financial sector. Overnight in China there was news of an injection of CNY 29bln via a 7-day reverse repo, although market commentators have said that this is more of a gesture than any meaningful intervention given the size of the country's banking market. Fixed income markets are particularly light with there being no trade in the bund future given the Eurex closure, with other trading products relatively flat given the lack of newsflow. However, the short-sterling curve has bear-steepened and thus continuing the trend seen since the end of last week as a result of both UK unemployment and UK GDP coming in better than expected.

Watching Indian bureaucrats attempt to halt more than one billion human beings’ desire for gold has been one of the more entertaining and pathetic stories of all of 2013. As we noted previously, gold smuggling has now outstripped the illegal drug trade but it appears the trend continues, potentially at an accelerated rate, as we just learned that, incredibly, “almost every passenger on a flight from Dubai to Calicut was found carrying 1kg of gold.” As I have said many times in the past, if an Indian wants their gold, they will have their gold.

With all eyes squarely focused on US equity markets daily impersonation of the Caracas Stock Index, BofAML is growing increasingly concerned about China. Since the start of December, Chinese equities have been under significant pressure with the Shanghai Composite on the edge of completing a 3-month Double Top. A break of 2079 would confirm this move, exposing considerable downside in the weeks ahead. This could also prove to be the catalyst that ends the 17-month downtrend for USDCNY.

Despite the recent sharp narrowing in the U.S. federal budget deficit, the U.S. fiscal policy outlook carries financial stability risks, driven by three factors (aacording to the OFR - aka, The Treasury). First, a rapid pace of deficit reduction carries economic costs. Second, a clear resolution of the nation’s long-term fiscal challenges is still lacking. Finally, the political process for implementing sustainable fiscal adjustments has become more uncertain. While everyone is still bleating over the success' of the budget deal (despite its betrayal), the next few months have plenty of potential mines for fiscal fragility.

It seems US sailors aren't the only ones who three short years after the Fukushima disaster are being stricken by cancers and other radiation-induced diseases. For once, the media blackout surrounding the Japanese nuclear power plant tragedy appears to have crumbled, and at least a portion of the truth has been revealed. Hong Kong's SCMP reports that fifty-nine young people in Fukushima prefecture have been diagnosed with or are suspected of having thyroid cancer. All of those diagnosed were under the age of 18 when the nuclear meltdown occurred in 2011 and while "experts" are divided over the cause, Okuyama University's head of oncology stated "the rate at which children in Fukushima prefecture have developed thyroid cancer... is several times to several tens of times higher [than average]."

UPDATE: Un-Taper didn't work - 7-day repo just hit 9% as (just as we warned) the small banks are left wth scraps

For the first time in 3 weeks, the PBOC un-tapered and added CNY 29 billion liquidity (via reverse repo). Despite the Chinese governments denial of any liquidity crisis, the decision to "fold" reflects a clear indication that, as Monex strategist Eimear Daly notes, "China's attempting to incrementally liberalize markets and to allow instabilities to unwind with minimal damage; and spikes in interbank lending rates show authorities are struggling to manage this task." The liquidity was provided at 4.1% (not a particularly low rate but well off the highs of the last week) but 7-day repo rates (though down 3.5%) remain high at 5.5% (150bps above the 'normal' levels of July to October). The night is young though as we suspect, just as yesterday, the big banks will soak up the first juice and leave the small banks (who need the most) floundering...

With most stock indices breaking record highs (and even the NASDAQ back to 13+ year highs), we thought a time of reflection and giving (as opposed to receiving Fed liquidity) required a look at the bigger picture. The following 13 charts of the last 13 years cover everything from collapsing SAT scores to record high prices of alcohol and from surging gun background checks to record high food stamp recipients, this is not your great grandma's depression-"recovery"...