Archive - Apr 2013

Confused about the latest disconnect between reality and propaganda, this time affecting the (foreclosure-stuffed) housing "recovery" which has become the only upside that the bulls can point to when demonstrating the effectiveness of QE now that the latest attempt at economic recovery has failed miserably both in the US and globally? Gluskin Sheff's David Rosenberg is here to clear any confusion.

In what seems like a bow to his overlords in Berlin, Spanish Prime Minister Mariano Rajoy has unleashed a somewhat remarkable torrent of terrible realization and truthiness:

• *SPAIN PM SAYS EUROPE ECONOMY WORST THAN FORECAST THIS YEAR
• *SPAIN PM SAYS ALL EU COUNTRIES ARE REVIEWING GROWTH FORECASTS
• *SPAIN PM SAYS MUST TAKE DIFFICULT DECISIONS FOR COUNTRY'S GOOD
• *SPAIN PM SAYS EU COUNTRIES MUST ACCEPT TO GIVE UP SOVEREIGNTY
• *EU countries’ giving up sovereignty to the bloc is crucial for its future

In other words, handing over your liberty to Germany is for your own good. It seems the German perspective (as we noted here) is winning out.

Despite dismal data on German PMIs, Italian and Spanish equity markets have had their best 4-day run in 7 months to push back to two-month highs as the exuberance around the world reaches fever pitch once again. The Eurostoxx 600 (broad European stock index) jumped a tremendous 2.4% for its biggest rise in 8 months. EURUSD plunged and perhaps gives the hint that the ECB will be forced to act next week - so what are they going to do? Rate cut? (maybe) Another all-encumbering LTRO? (bank spreads didn't weaken) More direct bond-purchases? (failed abysmally last time - though this shift could be the front-run of that) Doesn't matter... nothing matters. Spanish and Italian bond yields and spreads smashed lower to near pre-crisis spread levels even as Rajoy says things are worse, much worse, than expected. Bad is good, but terrible is way better... but if it's all so 'good' why did investors seek Swiss short-dated debt as a safe haven once again? (hovering at 3-month low rates).

That Congress has had aspirations on collecting sales tax on online purchases, which comprise an increasingly bigger portion of all retail sales in the US, in the past is nothing new. However, following last night's passage of the Marketplace Fairness Act in the Senate with a cloture busting 74 votes for (and 20 against), the US may be very close to finally adopting a uniform standard taxing all online transactions, regardless of physical jurisdiction or any other geographic boundaries. As Ars Technica reported last night, "your tax-free days of online shopping are numbered. If S743, also known as the Marketplace Fairness Act, becomes law, the millions of Americans who have been able to avoid sales tax online will have to start paying it. Given the broad support shown by today's US Senate vote, some version of it is likely to come to fruition."

In his increasingly ubiquitous manner, the bond king has reduced his thesis to 140 characters, summed up in just two words... Sell Euros

Gross: Expect an ECB cut soon but will it lead to real growth? Doubtful. Euro needs to go down. Sell Euro.

— PIMCO (@PIMCO) April 23, 2013

It seems sometimes there is no need for a 300-page Powerpoint presentation.

A key goal of propaganda is to mystify and obscure the Power Elites' real quandary and agenda. For example: we're just trying to help you out here, folks, by inflating another "wealth effect" bubble that will make you feel more prosperous. You're gonna love the warm fuzzy feeling of a return to the good times, even if you own zip-zero-nada in the way of productive assets. Or: we're raising your taxes and expropriating your money via inflation to stabilize the system that benefits you. (And yes, you may kneel and kiss Janet Yellen's ring.) The current level of mystification is truly extraordinary. But fortunately, we own a demystification device that scrubs out the mystification, leaving only stark, unforgiving reality. The global Status Quo--the U.S., the E.U., China, Japan, Cyprus, Greece, Italy, Spain, et al.--has only one choice: do more of what has failed spectacularly.

It is only logical that after last month's New Home Sales miss (exp. 420, printed 411K), which sent the market higher, today's tiniest of beats in New Home Sales, which printed at 417K, on expectations of 416K, would also send the market higher. The total months of supply indicated was 4.4, the same as February, and well above the 4.0 from January. Unnoticed in the release was that the January housing data was revised higher from 431K to 445K, meaning last month's drop would have been even more acute (-7.6% instead of -4.6%), but who cares about such things as data chronology now that the headline effect is long gone.  All that matters is that the trend is the mainstream media's friend, which can report new home sales have grown once more... if only back to levels last seen in April of 2010 when the same number was 422K. Was the data actually meaningful on a long-term basis? We will let readers decide on their own after one look at the chart below. Finally, and this will not be mentioned anywhere, the average New Home price plunged from $310,000 to $279,900 -  the lowest since June of 2012. One can only imagine the step down in quality that was required to make up in volume what was "lost" in price.

Despite rising (and record) unemployment, non-performing loans at record levels crushing the banking system's balance sheets, pension funds all-in, and their Italian neighbor now expecting more budget cuts of almost 1% of GDP in 2015-17 (and further downside risks to the GDP forecasts); Italian and Spanish bond spreads are pressing below critically 'positive' levels. While Italy remains above recent low spreads, Spain has just breached the 300bps (spread to Bunds) level; last seen in November 2011. The last 3 days have been the best run in Spanish bonds for six months. This level has been significant resistance a number of times since the European crisis began, but this time it's different, since the BoJ is seemingly blind to 'risk' and only sees 'return'. With the market telling the politicians that Europe is fixed, is it any wonder they are all asking for a stop to austerity? Or is bad once again good, as it forces Draghi's hand to follow his BoE, BoJ, Fed compatriots down the rabbit hole?

Welcome to America and its stupid politics.

We know it is early in the day for a divergence chart, but the inexorable bid for US equities overnight (amid dismal global economic data from China and Europe) juxtaposed against the seemingly rational response of US Treasuries to drift lower in yield as growth expectations fade just leaves us saying WTF...

Just about a year and a half after the bankruptcy filing of MF Global, the first real lawsuit that directly names former MF Global (and Goldman) CEO Jon Corzine and his cronies, has hit the docket with MFG Holdings bankruptcy trustee Louis Freeh as plaintiff. The complaint: breach of fiduciary duty. Of course, when one is a bundler for the president, such trivial concepts as duty to anyone else, be it fiduciary or otherwise, naturally does not exist.

Asia is seeing a new gold rush. Demand for gold bars, coins and jewellery has soared as bargain hunters try to capitalize on the dip in prices. In Hong Kong and Beijing customers lined up outside banks and jewellery shops to make purchases and in some instances there was not enough physical metal to meet the demand. The Shanghai Gold Exchange’s cash contract hit a new record high yesterday (43 metric tonnes, up from 30.4 on April 19th) while gold coin sales at the U.S. Mint have nearly tripled in April against last month’s figures.  Joni Teves of UBS research said, “Physical markets have responded to the much cheaper gold price levels,” and “our physical flows to Asia have been particularly elevated this week.” Asian investors demand for the physical yellow metal has supported the gold price, rallying it up 8.1% from last week’s low.

"While I think this policy is fundamentally right, I think [austerity] has reached its limits," was EU President Barroso's firestarter comment yesterday. As the WSJ reports, the IMF also said last week that  the bloc should ease back on austerity, while a number of governments outside the EU have made the same call, arguing that its belt-tightening is holding back the global economic recovery and could end up being self-defeating. Of course, the beggars are once again trying to be choosers as Spain's de Guindos pushes his agenda along this 'growth vs austerity' path, "What we are going to do now is strike a better balance between deficit reduction and economic growth," but it is the bagholders (or money-men) of Europe that has the last word. As we noted yesterday, Merkel's expectations are no more money without ceding sovereignty, this morning it is German MPs who are up in arms as Nobert Barthle condemns Barroso's statements on austerity and Hans Michelbach flatly rejects this path of no resistance as it "undermines fiscal consolidation efforts." Perhaps the most clear message was from Volker Wissing who added, "demanding more money or time would send a 'fatal' signal to financial markets on reforms." With German PMIs so bad this morning, we are reminded of Bill Blain's comment, that ultimately growth is about confidence - and right now, Europe is a very unhappy place.

Yet another round of less than impressive macroeconomic data from China and Eurozone failed to deter equity bulls and heading into the North American crossover, stocks in Europe are seen higher, with tech and financials as best performers. The disappointing PMI data from Germany, where the Services component fell below the expansionary 50, underpins the view that the ECB will likely cut the benchmark interest rates next month and may even indicate that it is prepared to provide additional support via LTROs. As a result, the EONIA curve bull flattened and the 2/10s German spread flattened by almost 3bps to levels not seen since June 2012. In turn, Bund future hit YTD peak at 146.77 and the next technical level to note is 146.89, 1st June 2012 high. However it is worth noting that the upside traction is also being supported by large coupon payments and redemptions from France, the second highest net market inflow for 2013.

This is the beginning of War and those on the losing side don't even realize they're in battle. Remember, Merkel has already declared the EU to give up sovereign authority for the greater good, the United Germanic Republic of Europe! This is how she will do it.