Archive - Dec 2013

In the last election it was the Millennials (18-29 year olds) that brough President Obama home on his hope and change miracle tour; but now, just over a year later, a Harvard Institute of Politics poll finds that a stunning 57% of 18-29 year olds disapprove of Obamacare. As we noted before, this is a critical breakdown in making the Affordable Care Act 'affordable' but it seems less healthy customer are more likely to persevere through the techical obstacle to gain coverage than younger, healthier "customers" who feel less need for insurance (never mind the "easy" women and keg-standing men). The poll gets worse with 40% expecting the quality of their coverage to worsen, and as Bloomberg reports, even more troubling for the White House, almost half in that age group say they’re unlikely to enroll in insurance through a government exchange, even if eligible.

Whether it was President Obama's call for moar debt, less spending cuts, and a safety bid from his implicit end-QE comments, technicals from moving-averages, or reflections of the USD weakness; precious metals are surging this morning... Stocks are tumbling further (as are bonds) back to EURJPY-implied levels... call for gold bubbles in 3...2...1...

As we head towards NFP and discussion about tapering picks up again it is crucial to understand the Fed balance sheet report, where, at least in terms of the treasuries they own, they continue their Hunt Brothers impersonation. What this means is we would be very nervous about being too short treasuries here because in addition to steep curves and low inflation, you have the potential for a short squeeze as the free float of longer bonds is just small.

We've come a long way...

There’s no question here about identifying the oppressors and the oppressed. There’s no conflict between the internal exercise of your freedom to think for yourself and your external behavior. There’s no omnipresent social media, no cacophony of commercial voices, no GPS chips, no algorithms that can predict your likes and dislikes better than you can yourself. It’s just faceless soldiers with AK-47’s trying to impose their will on Patrick Swayze’s external behavior. It’s a movie that would have made as much sense (more?) in 1784 as it did when released in 1984. Our world isn’t “Red Dawn,” it’s “Invasion of the Body Snatchers.” Control over our behaviors isn’t as much physical as it is mental, not so much externally imposed as it is internally embraced. If you’re reading this note, the problem is not that you are in a dogmatic slumber and need to be woken up. The problem is that you know it’s in your best economic interest to act as if you’re still asleep. In a world overrun by pod people, the big losers are the people who can’t fake their pod-ness and ultimately get outed by Donald Sutherland.

Rebellious Fed head Lacker fired at “implicit guarantees” to bail out bank creditors. Covered liabilities, the size of US GDP.

Having "fixed" Obamacare, the President is ready to re-pitch American 'excellence' today as he addresses the state of the economy. Remember, good is bad and bad is good - do don't over-sell it... oh, and all the bad stuff - that's the Tea-Party's fault... Just don't show him (or anyone) this chart...

With the mainstream media inundated with tales of low paid workers demanding higher minimum wages (thus theoretically expecting to be paid more than a market rate for their services), we thought a look at the other end of the scale was worthwhile (where, some might argue, the following 10 CEOs are also paid above market rates for their 'ability')...

We had the good news (ADP beat sends stocks down) and now the bad news (ISM Services) which spikes stocks instantly up 1%. It seems increasingly clear from the last hour of trading that, as we proved here, the bulls are hoping for moar and moar bad news to keep the retirement dream alive... Notably nothing else is reacting in this manner to provide cover for stocks.

With the government shutdown which apparently had zero impact on the economy, moments ago the Census Bureau released not one but two New Home Sales reports together due to the delay in data reporting. The data showed that while in September new home sales declined from 379K to 354K annualized, or the lowest since early 2012, the subsequent rebound sent New Home Sales to 444K, or a 90K increase, +25.4%, in one month was the biggest month over month jump since May 1980! What was less noted is the prior revisions, with June revised 0.9% lower, July down 4.4%, and August revised by a whopping 10% lower. So what caused the October surge? Possibly it was pent up demand, because as the first chart below shows, an unbroken trendline suggests a modest decline in sales data net of the prior downward revisions. However, what was most likely the reason for the increase is that the Median new home sales price tumbled to $245,800, down from $257,400 and well below the recent highs of $279,300. In fact, this was the lost median new price in one year. Supply - meet demand, and equilibrium price.

Being the major part of the US 'economy' the disappointing performance of the ISM Services (soft data) - printing at 53.9 missing expectations of 55.0 - should be a concern. Under the covers, the data is a little more worrying than the stil-in-expansion mode headline data miss. New orders, business activity, and perhaps most worrisome, the employment sub-index all slid with the latter at its lowest since May. Combined with the manufacturing PMI, the composite ISM index fell from 55.1 to 54.3 in November. Despite the data, respondents remain optimistic...though tempered by its slow pace. This is the lowest November print for ISM Services since 2006. The last 4 times ISM Manufacturing was so far above Services it marked the turning point in manufacturing and a market correction.

After the initial post-Taper-talk rate-rise-driven marginal-buyer-crushing collapse in mortgage applications in the US, the un-Taper provided a brief period of hope for the NAR and market apologists that all-cash buyers are all we need and mortgage applications dead-cat-bounced on the rate drop. However, all that hope ended in early November and as of this morning's print, mortgage applications have plunged back to the almost record lows of October 2008 (levels not seen since December 2000). As Bob Shiller recently explained, "we can't trust momentum anymore," in housing and the speculators are leaving the buildings.

The era of bondholder bailouts is ending and that of depositor bail-ins is coming.

In that context a move to increased allocation of savings including a prudent allocation of some 5% to 10% to precious metals, is a sensible policy.

The chart below from the WSJ, summarizes perfectly the hell that US retailers find themselves in. In brief: sales down and inventories soaring, means liquidation sales have to surge, while profits and cash flows crater.