Archive - Mar 14, 2013

While "this time may be different" for the centrally-planned stock market, every historic example of subsequent ruin notwithstanding, the very recent past is again hitting Carnival Cruise Lines with a vengeance, as one short month after its disabled Triump cruise ship fiasco, in which passengers were trapped on board a filthy ship for five days, the cruise company is forced to suffer through a very humiliating case of deja vu. Reuters reports, "A Carnival Cruise Lines ship was stuck at port in St. Maarten in the Caribbean on Thursday with equipment trouble, a month after another Carnival vessel was disabled in the Gulf of Mexico by a fire, trapping thousands of passengers for nearly five days. The captain of the Carnival Dream reported a problem with the emergency diesel generator, which controls the ship's propulsion, a U.S. Coast Guard spokesman said.  "Right now the passengers are being kept on board the ship for accountability reasons," Doss said. "They were scheduled to leave today so the captain has decided to have everybody remain on board at this time. CNN reported that passengers aboard the Carnival Dream had contacted the cable news channel complaining of power outages and overflowing toilets, tales reminiscent of the troubles on the Carnival Triumph." And to think the passengers could have just stayed home, opened their E-trade accounts, BTFD, and basked in the glow of the wealth effect, knowing full well at the current rate of Fed liquidity injections they could all soon afford their own private island.

For all those who have the displeasure of trying to reconcile the cognitive dissonance of a record high stock market, and European employment at 2006 levels, here is some more fuel to the fire from Germany's Finance Minister:

SCHAEUBLE SAYS 'NO REASON TO BE DEPRESSED' ON ECONOMIC OUTLOOK

This is precisely the pep talk that the just announced record high number of unemployed Greek and Spanish youth needs.

Italy has its own set of problems with huge debt loads, soaring unemployment, and a growing social revolt against the new normal austerity status quo but there is one issue that is not discussed much in the mainstream media that is as critical. Italy has the second fastest aging population in the world (and highest in Europe). Japan is the worst/fastest based on Bloomberg Brief rankings - driven by factors such as the speed of aging in one generation, concentration of seniors, the pipeline of elderly, and the number of seniors not participating in the labor force. As Niraj Shah notes, nine European nations make the world Top 10. Doesn't exactly bode well for Europe's future as dependency ratios are set to soar but it appears, sadly, that Italy is closer to Japan's dismal quagmire than Spain's based on demographics.

Meetings between public company managements and investors are the bedrock of the fundamental investment process.  The reason for that, however, is often lost in translation.  It is not, for example, because most investors or analysts are systematically better at reading “Body language” about the quarter or new products.  Seriously – they aren’t.  No – the reason that management meetings are useful is because, over time, managements let down their guards and act like regular people.  And in those moments, truth – about character, about wisdom, about judgment – comes rolling out.  Today we offer up a personal highlight reel of examples from +20 years of management meetings. Between the earnings forecast and the actual results sit only two things: time and management.  Time is uniform; management quality is not. 

The grind lower in initial jobless claims continues, which from an upwardly revised 342k (was 340K) last week, declined to 332K in the most recent week ended March 9, on expectations of an increase to 350K. This was the third consecutive beat in a row and the lowest total print since January, which in turn takes it all the way back to January 2008. Continuing claims were also better than expected, dropping from an upwardly-revised 3113K, to 3024K, on expectations of a 3090K print. According to the BLS, unlike the last time we had an abnormally low print, no states were estimated this time around.

If it appears that there has been a period of perplexing quiet in the financial comedy TV's hammering on the topic of the great rotation, it is because that is indeed the case. The reason? As per ICI, following the start of year inflow surge into domestic equity mutual funds, we have experienced a steady trickle lower in inflows, and then, as noted last week, have had not one but two consecutive outflows, confirming that the pattern from 2011 is fully set. Finally, for those curious where the surge in early 2013 inflows came from, we suggest rereading our post from December on "A Record $220 Billion "Deposit" Injection To Kick Start To The 2013 Market." In summary: there has been zero, zilch, none "great rotation" out of bonds into stocks, especially since bond funds have seen far greater inflows in 2013 compared to stocks, and the only money "rotating" has been the parked deposits in year end 2012 ahead of the Fiscal Cliff, being reallocated back into equities (of which there is now no more), and some modest money market fund moves, which also have now tapered out.

Three sticks and three chances for a poke in the eye. On the other hand they could be kindling for the fire or perhaps the first ingredients of alphabet soup. You see, this is what makes things so tough; we all stare at the same things, the same events and reach wildly different conclusions. The media hands out each stick as presented by the government, a corporation or someone else in a supposed leadership position. The somewhat wise can grasp that there are three sticks and not just one and the good minds recognize not only the three sticks but see that it can be made into the first letter of the alphabet. In this light then let us consider the recent proposal from the Federal Reserve Bank of Dallas. Under the banner of limiting the government’s support for the large U.S. banks in case one were to fail the Dallas Fed has proposed capping assets at $250 billion and of walling off investment banking from the bank...

If anyone is confused why European stocks just hit their highest levels in nearly 5 years (if not all time highs - there America with its 48 million foodstamp recipients has it beat), the chart below should provide some lack of color. According to Eurostat, in Q4 the number of persons employed in Europe compared to Q4 declined by 0.3% in the Euroarea, and 0.2% in the Eu27. The decline was -0.8% and -0.4% for the EA17 and EU27 compared to a year ago. Of course, if the Fed and ECB keeps pushing stocks higher, monetary illogic dictates that eventually this number will rise because somehow having more diluted claims on money floating around is good for jobs. Just not yet.

• Dimon’s ‘Harpooned’ Whale Resurfaces With Senate Findings (BBG)
• Greece and lenders fall out over firings (FT) - as predicted 48 hours ago
• Dallas Fed Cap Seen Shrinking U.S. Banking Units by Half (BBG) - which is why it will never happen
• Xi elected Chinese president (Xinhua)
• Russia Bond Auction Bombs as ING Awaits Central Bank Clarity (BBG)
• U.S. and U.K. in Tussle Over Libor-manipulating Trader (WSJ)
• Chinese firm puts millions into U.S. natural gas stations (Reuters)
• In Rare Move, Apple Goes on the Defensive Against Samsung (WSJ)
• Berlin Airport Fiasco Shows Chinks in German Engineering Armor (BBG)
• Ex-PIMCO executive sues firm, says was fired for reporting misdeeds (Reuters)
• Bank of Italy Tells Banks in the Red Not to Pay Bonuses, Dividends (Reuters)

If the last three days were spared an overnight ramp in US futures, today this has not been the case as the new carry pairs of choice, the USDJPY and EURJPY, have seen constant gradual levitation overnight, pushing the correlated US OTC markets higher and setting the stage for the tenth consecutive, and perfectly artificial, Dow Jones increase. It is notable just how broken the old direct EURUSD-ES correlation is in times when correlation desks can offset selling pressure by shorting Yen and obtain local funding. That said, even the USDJPY appears to have stalled out in the low/mid 96 range - it is unclear what the catalyst pushing the Yen much lower will be, as virtually all rhetorical ammunition used by the BOJ and its affiliates, has by now been well and truly used up, and the daily talkdown sessions are merely a regurgitation of previous talking points.

Here is a quick overview of what is going on. Besides reviewing the key developments, we explain why the EU Summit, which is not attracting much attention, is in fact important.