Archive - Mar 2013

Years after the CFTC, under the leadership of Goldman's Gary Gensler, theatrically agreed to investigate whether the price of precious metals was manipulated during trading - whether systematically or ad hoc - only to let that inquiry fizzle and drop the whole idea proclaiming there is manipulation, the commodity futures regulators are once again taking a look at shady activities originating at London. Or rather, it is "discussing internally" whether the daily London gold and silver price fixing is open to manipulation.

Gasoline prices in the U.S. Midwest have pulled back from the seasonal highs reported in February. Motor group AAA reported Monday that U.S. commuters paid, on average, $3.69 for a gallon of regular unleaded gasoline, just over 1 percent less than they paid last week. For some markets, that's the first time gasoline prices have declined this year. A series of refinery issues, coupled with higher oil prices, left some motorists in February paying the highest they've ever paid seasonally for a gallon of regular unleaded gasoline. By the end of February, some drivers in the Midwest were paying nearly $4 per gallon on average, sparking congressional debate over the impact of speculation in the energy market. Given concerns over costs associated with healthcare, insurance and other issues not related directly to energy, it's curious why there aren't hearings when prices begin to fall.

The Dow managed its ninth green close in a row - its best in 16 years - and obviously closed at all-time new highs. The Trannies were the real winner though as they are now up over 4% in March (considerably outperforming the rest of the major indices), and up 29% since mid-November (a 120% annualized return) with no more than a 2.5% retracement in that period. Four stocks dominated TRAN today JB Hunt, Alaska Air, CH Robinson, and Ryder accounting for half the index's gains. Volume was its lowest of the year (ex President's Day). Average trade size was low. On the week, financials and energy are the underperformers. Treasury yields spiked on retail sales, dropped on the auction and go out very modestly higher on the day but not confirming the equity exuberance again. FX markets also pointed to a less sanguine view of the world as the USD rallied and EURJPY (carry) provided little support. VIX held up for most of the day but collapsed into the close back under 12%. Commodities gave back earlier (weaker USD) gains to close at the lows of the day.

Our last discussion of the miracle of earnings expectations focused on the bottom-up hockey-stick that it seems the consensus believes is ahead (always out there in the future). Today's 'factual' and 'empirical' whiteboard lecture on the 'miracle' comes courtesy of CNBC's Rick Santelli, who appears as frustrated at his co-correspondents permabullishness (see Liesman's flip-flopping views on retail sales today) as the implicit disconnect between the market and fundamentals. To wit, the fact that expectations for GDP growth and earnings are so divergent. With earnings growth expected to be +14.7% this year and nominal GDP around +3-4%, Santelli asks his guest where nominal GDP 'normally' is for such strong earnings expectations - the answer 7.6% nominal GDP growth... reality discussion ensues...

The IMF - known for its independence, thoroughness, and Keynesian multiplier fiascoes - is the go-to institution to back any bullish-scenario because one can always rely on any dip in data or markets to hockey-stick back to textbook trend. With that background, we thought it fascinating to see, as Bloomberg Brief notes, which European nation is expected to be the leading economy for the entire Eurozone in 2016. As a hint, in Q4 2012 its economy fell 5.7% YoY, and the nation's overall economy has shrunk 20% since the regression began in 2008. As a final hint, the nation's Finance Minister on Monday told The Guardian the nation was over the worst. We can only hope the 60%-plus of youth that remain unemployed are buoyed by these rosy projections.

A surprising pick for Pope, Argentina's 76 year old Jorge Mario Bergoglio, who was not among the front-runners, is now the Pope of the Catholic Church. His chosen name is Pope Francis. He is the first non-European pope since 741.

Despite the plethora of propagandist panderings, the reality of the Business Roundtable (BRT - an association of chief executive officers of leading U.S. companies) findings are far less enthralling than the headlines might suggest. In fact, despite the protestation that their economic outlook ticked up - which as the chart below shows so evidently - is merely a reversion to the lows of 2011; the sad 'fact' is that expectations for higher Sales, CapEx, and Employment are as bad as they have been since early 2010. CapEx, the much-vaunted miracle driver of revenues this year, is below Q4 2009 levels of expectation. Even the BRT itself offers up the words 'moderate' when describing the changes and yet the mainstream media pounce on an uptick like cardinals to the new Pope. It appears that we will have to wait another quarter to see what the CEOs of the nations largest companies are really doing as their stocks soar to record highs.

Bhutan's guiding national policy is Gross Domestic Happiness, as a reference point for Net Value. Here in the U.S., we give lip-service to all these values, but ask yourself: where do we spend most of our time? Serving our masters in the State/market economy, creating Net Worth for ourselves or someone else. Yes, we all still need to earn a livelihood, but imagine a society constructed around generating Net Value and Gross Domestic Happiness instead of Net Worth. The power structure would collapse because none of these activities or accomplishments generate enough profits or taxes to keep the Machine operational. A brush with mortality has a way of stripping away the superficial and the false. How many ghosts are we living with while our real lives have been abandoned as insufficiently ambitious and net-worthy?

Moments ago white smoke emerged from the Sistine Chapel which means that the Cardinals of the Catholic church have elected a new pope on the second day of Conclave. The identity will be revealed shortly. Stocks take this as a bullish signal and hit intraday highs, and for the DJIA, new all time record highs. All is well in the world.

Aside from a very much vacated President's Day trading market, for 1400ET, today is the lowest volume day of the year (in line with Monday's scarcity)... given this lack of real market, the algos are let loose to ply their levitation magic - and sure enough, Dow Transports reach new highs and the S&P pushes on towards that record...

"The air is thick with denial in this chamber," is how UKIP's Nigel Farage begins his truthiness rant at the most recent European Council meeting. Reflecting on the Italian election and overwhelming success of 'Eurosceptic' political parties, Farage barks that it "is absolutely clear that Eurozone membership is completely incompatible with nation-state democracy." The complete denial (and "unutterable drivel") about the Eurozone crisis incenses him as he says "you'd think listening to everyone this morning that it's over." The real problem, he explains, is that they won't face up to the reality that "You are not facing up to the consequences for what you've done," as he tries to make the technocrats comprehend, "the Eurozone has been a complete economic disaster," because of the Euro - and the disaster is still coming down the tracks.

Think of a rhino that puts its head down, and just charges through the bushes. Everything gets trampled in the process.

The meme of the moment appears to be that sliding gas prices (which by the way merely fell back to mid-February levels) will no longer hamper the over-taxed and under-incomed consumer providing yet more upsided-ness for stocks. Sorry to burst another fictional bubble but Gas prices have now risen for the 3rd day in a row as RBOB (wholesale gas prices) surge to new 2013 highs and crude oil prices push back to one-month highs. Perhaps that is why today's retail sales data (unadjusted) is not providing the pop that so many talking-heads believe is warranted. Between RBOB highs and the RIN issues, is it any wonder the CME just hiked 'crack spread' margins in an effort to keep prices under control?

Those expecting to see any indication of that mythical, if completely non-existent rotation out of bonds into stocks (which is really originating out of money markets and savings accounts, and has already tapered out), will not find it in today's US bond auction, which saw the Treasury sell $21 billion in Treasury paper at the low, low yield of just 2.029% (70.31% allotted at the high), below February's 2.046% auction yield, and stopping well inside the When Issued of 2.053% at 1 PM, indicating massive buyside demand and confirmed by all the internals. The Bid To Cover jumped to 3.19, the highest since October's 3.26, and far above the TTM average of 2.96. The Indirect take down was a massive 47.7%, the highest December 2011, when it printed at 61.9%, leaving 30% for Directs, and a tiny 22.3% for the Dealers, which was the second lowest Primary Dealer take down in history, higher only than July 2012's 14%. Overall a whopper of an auction, and confirmation that if anyone has lost interest in frontrunning the Fed, they sure were not in today's auction roster.

“Time has come"