Archive - Feb 3, 2013

From macro to micro; from momentum to valuation; and from money supply to expectations, the 'new normal' in which investors find themselves is one currently dislocated and 'different' from the past. However, as we have seen all too often in the past, these dislocations do not last forever. And with positioning (here, here, and here) as bullish as its ever been, it seems there is little room for error in economic reality catching up to stocks 'hope'-filled expectations.

While in the past 3 months both the USDJPY and the Nikkei index have soared on the same vague mix of promises (than can never be delivered), and threats (by central bankers, which work only as long as they remain purely abstract and are not acted upon), one security that has barely budged are Japanese bonds: without doubt the fulcrum security that will put a premature end to Abe's latest attempt to reflate an economy, whose total debt is a ridiculous 2000% of annual public revenues, and which will spend half of its annual tax income on interest expense if rates merely double from their record low levels. Until now: Bloomberg reports that Japan's Government Pension Investment Fund: the largest retirement fund in the world overseeing 108 trillion yen ($1.16 trillion), and historically the biggest buyer of Japanese bonds, "will begin talks in April about whether to reduce its 67% allocation to domestic bonds." Read: sell, which may be why we have already seen a rather steep move across the JGB complex overnight, because one the largest player in the space moves, everyone else follows as nobody wants to be the last seller left.

Someone, somewhere will surely blame the upcoming Q1 GDP miss on what just happened in New Orleans.

While it is now unanimous that Solyndra just won the funniest ad of the Superbowl by a mile, while we await for electricity to return to the Superdome (a stadium which has seen some $471 million in taxpayer funds since Katrina, and apparently not nearly enough) as the Boeing battery used to power up Super Bowl 47 is replaced, we wish to bring to our readers this message of supreme ironic poetry delivered by none other than the US Department of Energy.

More and more in fashion lately in the financial world is companies taking huge write-downs of some flopped acquisitions....

It's that day again. Some will fast forward through the game and watch the commercials (Top 5 most viral Ads below); others will have a stadium-pal installed early and elasticated waist-bands; and many will win (or lose) a fortune based on any number of random permutations of path-wise dependent scoring. However, presented for your viewing pleasure, the only three infographics needed for today: Of Beer and Bathroom Breaks, Super Bowl Bingo (drinking game), and the History of Super Bowl Betting Lines. Go Niners...

We recently summarized the world's developed markets in one simple table and there was much 'redness' to go around. The following table provides a similarly broad-based view of the world's developing nations. Citi's Early Warning System heat-map provides an at-a-glance perspective of the emerging market currencies at most (and least) risk based on 12 indicators of economic and financial stress. As currency wars migrate contagiously from developed money-printers to developing 'growth engines' the table below suggests Hungary and South Africa at most risk and China and Thailand least.

As everyone gets caught up in the euphoria of an ever rising S&P, remember that once upon a time, in a land far, far away, the economy was driven by goods produced and services provided instead of the amount of excess reserves banks can use to bid up market prices with.

From Margaret Thatcher's original (now extremely prescient) warning of the European Union's structure creating "insecurity, unemployment, national resentment, and ethnic conflict" to Nigel Farage's recent clarifications on the agonizing direction in which the unelected leadership of the Union are pulling Europe, this brief 3 minute clip draws some significantly eery similarities between the former Soviet Union and the current European Union. Every now and again, a step back to look for context in history is important - as while the Soviet Union was created by armed force, the European Union is being forced by political coercion and economic bullying. Perhaps Churchill summed up best how it should be, "We are with Europe, but not of it; we are linked but not combined; we are interested and associated but not absorbed."

Updated SOPA Bowl set with a halftime show that won't be beaten...

It would appear that either Germans have stopped using electricity (now that is some severe austerity) or the 'real' economy in the core powerhouse of Europe's growth is struggling notably more than the nominal price of its stock market would imply. Applying the same 'myth-busting' data-series to Germany as we have in China, it is clear that expectations for greater electricity demand (and implicitly economic growth) are grossly different to the expectations priced into German stocks.

When only a few dozen claim they understand how an economic system works we have crossed over from examining and describing a complex economic entity and into a religious cult based solely upon faith and belief.

Collectively, the world’s Central Banks have pumped over $10 trillion into the financial system since 2007. This money printing has resulted in a massive expansion of Central Bank balance sheets, spread inflation into the system, and done nothing to address the key solvency issues that lead up to the great crisis.

When Europe's politicians boldly said a few weeks ago what they have been repeatedly saying every year for the past three, namely that "Europe is fixed" usually just before it breaks all over again, what they meant was that the various stock markets were up. Because if they were actually referring to the European economies, Europe just broke (no pun intended) once more, with the Greek economy once again back to its "new normal" baseline state: a near complete halt as the cold of winter dissipates, and protests and strikes return. In this case, the biggest losers are the thousands of people living on various Greek islands who have now been cut off from the mainland for the 6th consecutive day. And everyone else, of course, reliant on the Greek economy actually posting an uptick one of these centuries.

On February 3^rd, 1913, one of the two most historic events in US history took place: the ratification of the 16th amendment, which established Congress' right to impose a Federal income tax on Americans, and overturned Article I, Section 9 of the US Constitution which explicitly prohibited a general income tax. The amendment was brief and to the point, and read as follows: "The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration." And with that, the US Federal Income Tax was born and has been with us for precisely 100 years.