Archive - Dec 2013

"Earnings" matter... until they don't. What's wrong with these two charts?

"Just be long. Pretty much anything. So here’s how I understand things now that I am no longer the last bear standing. You should buy equities if you believe many European banks and their sovereign paymasters are insolvent. You should buy shares if you put a higher probability than your peers on the odds of a European democracy rejecting the euro over the course of the next few years. You should be long risk assets if you believe China will have lowered its growth rate from 7% to nearer 5% over the course of the next two years. You should be long US equities if you are worried about the failure of Washington to address its fiscal deficits. And you should buy Japanese assets if you fear that Abenomics will fail to restore the fortunes of Japan (which it probably won’t). Hey this is easy… And then it crashed"

- Hugh Hendry

The winter holidays are traditionally supposed to embody a certain ideal of that which is best in the hearts of human beings. Unfortunately, this process has all but vanished today, twisted and mutilated into something sinister and poisonous. Those of us who pay attention are well aware of a trend of cultural decline within our nation, and this problem is disturbingly visible from Thanksgiving to Christmas. The idiocy and barbarism seems to span all economic “classes” - The dark side truly knows no social or financial bounds.

You decide...

Western central banks have tried to shake off the constraints of gold for a long time, which have created enormous difficulties for them. They have generally succeeded in managing opinion in the developed nations but been demonstrably unsuccessful in the lesser-developed world, particularly in Asia. It is the growing wealth earned by these nations that has fuelled demand for gold since the late 1960s. There is precious little bullion left in the West today to supply rapidly increasing Asian demand, and it is important to understand how little there is and the dangers this poses for financial stability.

With the world almost in total agreement that rates can only go up, that the 30-year bull market in rates is over and a return to "normal" rates is timely, perhaps a glance at the following chart of 700 years of government bond yields will enlighten a little as to where the anomalies and what the "normal" is. All too often investors are caught up in their cognitive dissonance-driving recency bias when a bigger picture may just help those who always proclaim to invest for the long-term.

While the world revels in the "recovery" propaganda of Spain's premier Mariano Rajoy, it is three time more difficult to get into Harvard than to get a minimum wage job at Ikea in Spain...

As we noted earlier, pollution in Shanghai has reached record levels causing the government to ban cars and cut production across factories. The images below are not photoshopped or edited... this is the day--to-day life in that bustling city looks like... and in case you thought moving inside was 'safe', "the fog" is creeping into the buildings too now... All we are waiting for now is the rotting corpses of over-capacity Chinese industries to come out of the dark...

With just a tad more than three weeks left in the year it is time to start focusing on what 2014 will likely bring.  Of course, what really happens over the next twelve months is likely to be far different than what is currently expected but issuing prognostications, making conjectures and telling fortunes has always kept business brisk on Wall Street.

Presented with one comment... fundamentals...

Despite every effort to sell as much JPY as possible to lift stocks and create the best run for the S&P since 2004, the algos failed (by pennies) but with solid gains nevertheless just to disprove all the good news is bad news believers - for now. While the NASDAQ managed a green close on the week (though underperformed today), stocks couldn't quite make it all back today but broke the 5-day losing streak. Treasuries ended the day unchanged and 10-13bps higher on the week. The USD dollar lost considerable ground this week (-0.5%) but it was safe-haven Swissy that stood out as the last 4 days are the best run in 5 months. Gold and Silver ended the week -2% or so and despite the intraday swings relatively flat today. All-in-all, stocks and JPY carry were in charge today as bonds and commodities were not playing at all. VIX dropped the most in 2 months back under 14% as the front-end drop removed the inversion.

While not the end-of-the-world that its name indicates, the confusion (highs, lows, advancers, decliners, and momentum) required to create a "Hindenburg Omen" means markets are not as gung-ho as the headlines might suggest. The last 2 Hindenburg Omens this year saw notable corrections (of course only to be un-corrected higher on the waves of liquidity).

Today's consumer credit report did not tell us anything we didn't already know: in October, total consumer credit rose by $18.2 billion, the most since May 2013, with the usual massive historical revisions. However, of this $18.2 billion, $13.9 billion was non-revolving credit, while revolving (credit card) debt rose by $4.3 billion. Which means revolving credit is still a woefully low $856.8 billion, or well below the $1.02 trillion when Lehman failed, even as credit issued mostly by Uncle Sam to fund car purchases and liberal educations, has exploded. Finally, and most troubling, in the past year over 95% of all consumer credit has been used to purchase rapidly amortizing cars and even more rapidly amortizing college educations. 

Obamacare is a catastrophe that cannot be fixed, because it doesn't fix what's broken in American healthcare. It is a phony reform that extends everything that makes the U.S. healthcare unsustainable sickcare.

Bitcoin is being sold aggressively on heavy volume as this headline hits:

*BAIDU SUSPENDS BITCOIN PAYMENT ACCEPTANCE ON VALUE FLUCTUATION

This is one of the reasons Citi and BofAML noted as 'disadvantages' and it seems Baidu agrees (for now). Remember when Baidu "accepted" Bitcoin in Oct it was trading at USD150 - it has rallied 8x since then...