Archive - Mar 2013

In yet another day in which no matter how good or bad (and by bad we obviously mean very good) the news is the only outcome is the now endless levitation in the DJIA, here is something out of left field. "14 time zones away" field. Because who better to explain what is "really" happening in the new grotesque, surreal, absurd abnormal, where up is down, bad is good is better, Americans engaged in combat in the US can and will be blown up by remote controled US airplanes, and absolutely everything is centrally-planned, than Dennis Rodman.

Liquefied natural gas (LNG) technology - from LNG seaborne tankers and LNG trains to floating LNG facilities have quickly gone from concept to commercialization, opening up new possibilities in new frontiers and rendering the remote - well, much less remote. Analysts say FLNG terminals will become a major growth market within the next couple of years, as they offer more flexibility than stationary terminals. Liquefaction of natural gas is the process of super-cooling natural gas to minus 260 degrees Fahrenheit (minus 162 degrees Celsius) at which point it becomes much safer and easier to transport. After its been shipped to its destination, regasification plants at importing or receiving terminals return the fuel to a gaseous state. A lot of money is being dumped into LNG technology right now. It’s a major bet on the LNG market, but here’s why it’s solid...

While gold, silver, and platinum remain held in ranges, it appears China's NDRC comments on carbon emissions and improved energy efficiency have been taken seriously enough to drive Palladium prices to 18 month highs (and notably divergent from the rest of the PM group). Palladium is now up more than twice the 215% gain in gold since Lehman and leads the PMs.

Save yourselves, buy stocks!!!!!

There was a time when the Fed's unofficial mouthpiece, WSJ's Jon Hilsenrath, who eagerly and promptly put to print anything the Fed deemed worthy of leaking to the access journalist, was relevant. Perhaps the only positive side effect with the advent of QEternity, which essentially took away the "surprise function" from the Fed as everyone now knows what will happen in perpetuity or until hyperinflation arrives, whichever happens first, was making such leaks as Hilsenrath completely irrelevant. After all, when the Fed has shown its cards to everyone, even as it keeps doubling down and pulling jokers out of its sleeve, those who "share" the Fed's thoughts have become completely marginalized. Today was one of those days when Hilsy strove to regain some of his former glory releasing the Fed's his take on today's NFP, which said absolutely nothing new. Yes we know even 500K jobs created a month will not end QE, and neither will 1MM, or more: after all the US still has $1+ trillion deficits needing monetization as far as the eye can see. In fact, the only thing remotely useful in Jon's article was at the very end...

According to the Hellenic Statistical Authority (ELSTAT), Greek inflation eased in January to +0.1% - its lowest in 45 years. However, as ekathimerini notes, the prices for certain goods (like food, energy, phones, medicine) rose just a little more than that, leaving us with a simple question: 'what's Greek for hedonics?'

The France-based ratings agency has just joined China's Dagong, and US Moody's by Fitch-slapping Italy with a BBB ratings handle. Citing four main reasons: election results which and 'non-conducive' for further structural reforms, deeper than expected recession, greater than expected budget deficits, and a weak government less able to respond to shocks. But apart from all that, as we noted earlier, Italian stocks and bonds are bid.

The media's ecstatic read through of today's Nonfarm payroll beat can barely end: after all, a print of 236k on expectations of 165K, why that has to be great. Well, it is. Until one looks to the number from February 2012, which happens to be 271,000. And even the Keynesian will agree that February follows January, which in 2013 was a downward revised 119K. January 2012? 311,000. In other words, the first two months of 2012 saw a 582,000 increase in non-farm payrolls. In 2013: 355,000. But something else happened between February 29, 2012 and February 28, 2013... Oh yes, the US government issued some $1,198,397,883,967.30 in debt. Oh, and the Fed monetized about half of this amount, and virtually all of the Treasurys issued to the right of the ZIRP period (i.e., risky debt). To summarize: $1.2 trillion in debt buys the US.... 61% of the jobs created a year ago.

At the lows, the USD had its best gain in 9 months today, but a small give back into the European close leaves EURUSD back below 1.30 having hit its lowest in three months. It seems the EUR-USD exchange rate has recoupled perfectly with the Fed/ECB balance sheet shifts. Bond spreads are tumbling amid this 'devaluation' as Spain's 10Y spread to Bunds has dropped to its lowest in a year (though Italy remains well above one-year lows). Spanish stocks also surged - up 5.5% this week! And Europe's VIX has plunged back to one-month lows. What's not to like? Oh apart from the macro fundamentals that are crashing everywhere in Europe.

From Goldman: "We recommend closing long positions in 5-year Spanish bonds, one of our Top Trade recommendations for 2013. Since inception on 6 December, the position would have returned 5.5%. On 6 December 2012, we recommended going long Spanish 5-year government bonds (SPGB 5 ½ 30-July-17 – the 5-year generic at the time), with an initial target of 3.50%. On January 11, the yield fell below 3.50% and we extended the target to 3.00%. Since inception, the 5-year Spain has rallied 111bp, from an initial yield of 4.29% to 3.18% currently (mid-market)."

While correlation is not causation (and money doesn't grow on trees), the following chart may help explain today's 'surprising' weakness (for now) from the open despite the 'goldilocks' data...

Inequality has many sources, but political and technological dynamics are key factors. Few commentators dare wonder if the entire model of distributing output via wages is broken. Those few who do dare wonder if there simply won't be enough paid work to go around have a conventional solution: the Central State should tax the remaining wage earners (and everyone's unearned income) and pay everyone without a job a guaranteed annual income. In the State-dominated consumerist economy, this is the only possible conceptual solution, because it gives the State more power and distributes enough income to keep the consumer-based economy well-greased. Is there no other model?

The build in wholesale inventories was a remarkable four times expectations at +1.2%. This is the biggest surge (and largest beat) since December 2011. GDP-enhancing 'if we build it, they will buy' attitudes pervade but the sames data was desparately disappointing. Wholesale sales dropped 0.8% (against an expectation of a 0.1% rise) for the biggest drop in 3 months and one of the lowest since the crisis 'ended'. Wholesale inventory-to-sales ratio rose to its equal highest since mid 2009 - it seems a lot has been banked on the consumer's return as the inventory build was dominated by Computers, Lumber, and Drugs wheras the sales drop saw Farm Products and Petroleum biting.

In a testament to just how euphoric stock markets are right now, James K. Glassman the co-author of the fabled Dow 36,000 — a book published in 1999 that claimed that stock prices could hit 36,000 by as soon as  2002 (and which quite understandably is now available for just 1 cent per copy) — has written a new column for Bloomberg View claiming that he might have been right all along... The uber-optimistic atmosphere permeating much of the financial press is frightening to me. The resurrection of the Dow 36,000 zombie is a symbolically significant event that likely signals much the same thing as it did first time around: a correction.