Archive - Jan 2013

The Winners of the Academy Award and Golden Globe Are ... Government Propagandists

Call it "X Date", call it "D(elinquent/efault)-Day", call it what you will: it is simply the day past which the US government will no longer be able to rely on "extraordinary measure" to delay the day of reckoning, and will be unable to pay all its bills without recourse to additional debt. It is not the day when the US defaults, at least not defaults on its debt. It will begin "defaulting" on various financial obligations, such as not paying due bills on time and in full, but since this is something Europe's periphery has been doing for years, it is hardly catastrophic. It will hardly be pleasant, however, as some 40% of government obligations go unfunded, and the US is converted to a walking, talking bankruptcy as unsecured claimants rush to demand priority, as the market, long living on hope and prayer, realizes that only now is it truly without a cliff under its feet, and most importantly, as suddenly $500 billion in maturing debt between February 15 and March 1 finds itself in a very, very precarious position.

As the S&P 500 pulls within a few percentage points of its nominal all-time highs, despite macro-uncertainty and micro-delusion, perhaps (as UBS' Peter Lee notes) a longer-term perspective is warranted. For over 80 years, the S&P 500 (or its proxy) has cyclically reverted to it its logarithmic trend-line growth. The last time the market pulled away from this bullish up-trend was in 1982 (and the previous period of cyclical reversion took 32 years from 1942 to 1974) and suggests the S&P 500 could well revert to around an 850 level within the next year or so. Perhaps Lee (the anti-thesis of JPM's Tom Lee) needs to read some Birinyi to really understand how to extrapolate? Still, an 80-plus year trend-line perhaps offers some color.

While moustachioed managers, contrary to the far better insight of their superiors, and mainstream spivs are trying to talk down Germany's somewhat stunning shift in thinking - i.e. to repatriate its gold - as nothing but political pandering (or cost-saving); it seems, just as we predicted, the rest of the world are seeing this crack-in-the-confidence-armor the same way we have suggested. As we noted here, the first party to defect from the prisoner's dilemma of all the bulk of global gold being held by the Fed, defects best (then the second, or even the third perhaps) and sure enough, via RTL, we see the Dutch CDA party has requested that Holland's gold supply be repatriated. Who next?

Sometimes the writing on the wall seems painfully obvious. But occasionally it's a good idea to step back and look at the big picture:

In its somewhat typical fashion, the Beige Book was dominated by the four 'M' words 'mixed', 'moderate', 'measured', and 'modest' as any weakness was blamed on fiscal cliff uncertainty (even though macro data and the market itself seems to have shrugged all of that silliness off rather dismissively). Employment conditions were little changed, Real Estate prices rose in 11 districts,and energy sector activity was mixed:

• *FED: TRENDS IN WAGES, PRICES, EMPLOYMENT 'RELATIVELY UNCHANGED'
• *FED REGIONAL BANKS REPORT 'MODEST OR MODERATE' ECONOMIC GROWTH

Unleash the anecdotal spin...

Unsure what the current blistering start for the S&P 500 means in the new year? Here is David Rosenberg putting the last two years in perspective to the last two weeks. Alas, with fat tails now solely emanating from politicians (as the Fed has guaranteed nothing wrong can ever happen again on the monetary side, until everything goes wrong of course), and politicians being inherently irrational and unpredictable, it is not exactly clear how anyone can factor for what in just one month is sure to be the biggest clash in history between two sides of a Congress that has never been more polarized.

There has been a very strong and concerted public-relations effort to spin the recent shale energy plays of the U.S. as complete game-changers for the world energy outlook.  These efforts do not square up well with the data and are creating a vast misperception about the current risks and future opportunities among the general populace and energy organizations alike.  The world remains quite hopelessly addicted to petroleum, and the future will be shaped by scarcity – not abundance, as some have claimed.

Just because the endless Israel vs Iran foreplay seems to no longer be exciting the world as much as it did all throughout 2010, 2011 and 2012 when military action seemed imminent over and over, it appears the world has a new geopolitical tension point: the recent incursion into Mali by French (and soon many other) forces, to protect "European interests" against "extremists" operating in the North, and as a corollary - the retaliation by the locals against Western Democratic powers. At least such is the simplistic plot line. Sure enough moments ago Reuters reported that islamist militants attacked a gas field in Algeria on Wednesday, claiming to have kidnapped up to 41 foreigners including seven Americans in a dawn raid in retaliation for France's intervention in Mali, according to regional media reports. The raiders were also reported to have killed three people, including a Briton and a French national. Subsequent reports indicate that the Algerian captives have been let go, and that this is purely an escalation against the invaders, an act which the US state department will harshly condemn at a 1pm press conference, and likely use as a catalyst to unleash US forces in the air or on the ground, to support the French campaign which at last check was going horribly.

Something has to give....

The following is a list, provided by the White House, of executive actions President Obama plans to take to address gun violence.

Germany is now openly telling the Fed that it is done playing around. This will have severe consequences in the financial system.

It would appear, given the equity market reactions, that investors are not expecting a dramatic impact to the gun-makers as Sturm, Ruger, Smith & Wesson, and even Cabela's are all rising ahead of the Biden-Obama Gun-Control Decree. Perhaps, this is front-running of what is likely to be record-breaking gun sales in the next 48 hours if past history is anything to go by. From the NRA's view of Obama as an "elitist hypocrite", Republican calls for his impeachment, and many US citizens against gun control (even though emotions are raw - 51% of men polled want to protect the right to own guns), it would appear that the populist might be struggling, especially as Politico notes that there are strong indications that any comprehensive legislation restricting weapons and/or ammunition won't even see a vote on the House floor.

Count on technology to bring the world into a new Oil [and Gas] Renaissance.

It will not come as a surprise to anyone who has spent more than a few cursory minutes reading ZeroHedge over the past few years (initially here, and most recently here, and here) but the rolling 'beggar thy neighbor' currency strategies of world central banks are gathering pace. To wit, Bloomberg reports that energy-bound Russia's central bank chief appears to have broken ranks warning that "the world is on the brink of a fresh 'currency war'." With Japan openly (and actively) verbally intervening to depress the JPY and now Juncker's "dangerously high" comments on the EUR yesterday, it appears 2013 will be the year when the G-20 finance ministers (who agreed to 'refrain from competitive devaluation of currencies' in 2009) tear up their promises and get active. Rhetoric is on the rise with the Bank of Korea threatening "an active response", Russia now suggesting reciprocal devaluations will occur (and hurt the global economy) as RBA Governor noted that there is "a degree of disquiet in the global policy-making community." Critically BoE Governor Mervyn King has suggested what only conspiracists have offered before: "we'll see the growth of actively managed exchange rates," and sure enough where FX rates go so stocks will nominally follow (see JPY vs TOPIX and CHF vs SMI recently).