Archive - Apr 2013

Measuring market data using fiat currencies can be misleading – even though an asset may rise in dollars, it may be because of declining currency value rather than true economic process. With central banks devaluing currencies at record rates, gold’s steady purchasing power makes it an ideal alternative pricing mechanism.

Reported U.S. food inflation has been a paltry 1.6% over the last 12 months, one of the lowest growth rates in food & beverage CPI since late 2010. However, ConvergEx's Nick Colas notes that the severe drought in the Midwest over the summer of 2012 will likely drive up food costs this year 3-4% across the board, by the USDA’s estimates. These headline numbers, however, don’t accurately reflect the prices of the real "basket of goods" that we bring to the checkout counter every week at the grocery store. Consequently, Colas warns, the CPI report doesn’t necessarily mirror the increase in our grocery bill. Nor does it take into accountdifferent food choices (e.g. healthy vs. junk food), farm prices, or demographics, all of which the USDA publishes separately. The actual, visible inflation at the checkout counter may lead the American consumer to think – perhaps inaccurately – that overall CPI is rising or falling at a similar pace. For a more detailed, accurate reflection of food CPI, then, we have to aggregate all of these indicators to see how they compare to overall CPI. In short, inflationary expectations may well be set to rise dramatically in 2013: “shopping cart inflation” was upwards of 1.3% last month, almost double the 0.7% overall CPI.

With earnings season underway, perhaps pulling back to 30,000 feet is worthwhile to glance at the macro environment that is backing these new all-time high nominal stock prices. These six charts say it all...

Think the great BitCoin drama is over? After plunging by over 60% intraday, touching $100 from an all time high of $265 earlier, BitCoin was just getting started, posting a just as epic rebound to $200 in mere hours... before tumbling once more to $125... before rebounding again to $180... before sliding to $140... and so on. As the vomit-inducing sequence above hints, merely following every twist and turn of the real time tragicomedy that is the minute chart of BTC is a full-time job. And with the bulk of assorted BTC price charts DDoSed into oblivion, or merely down due to record traffic, the only remaining real-time chart may be the following from Clark Moody: we suggest using 1 Minute resolution. Perhaps what is most fascinating, is that unlike regular stock, FX or commodity charts which are largely dominated by robots, algos and other electronic traders, the trading in BTC is purely carbon-form based. So for those who enjoy some seriously hypnotic after hours undulations, this chart's for you.

"In accordance with the [insert insolvent European country] authorities policy plans, major financial institution will be downsized combined with extensive bail-in of uninsured depositors, and a set of wide-ranging temporary capital controls and administrative measures. The programme is envisaged to build the foundation for sustainable growth over the long run. Nevertheless, in the short run, the economic outlook remains challenging. Real GDP is projected to contract by [insert massive amount] cumulatively in 2013-14. Short-run economic activity will be negatively affected by the immediate restructuring of the banking sector, which will impact on net credit growth and by additional fiscal consolidation measures. Temporary restrictions required to safeguard financial stability will hamper international capital flows and reduce business volumes in both domestic and internationally oriented companies. The bail-in of uninsured depositors will cause a loss of wealth, which will reduce private consumption and business investment. This, compounded by the impact of fiscal consolidation already undertaken and new measures agreed, will result in a sharp fall in domestic demand. Little reprieve can be expected from exports amid uncertain external conditions and a shrinking financial service sector."

Given that the Fed and the BoJ has our back (and will add a further $1.75tn or so to their balance sheets by 2013 year-end), we should expect US equity prices to rise to infinity and beyond. As one smart chap on the television noted, "stocks won't go down again," but given expectations for earnings in 2013 (which include the remarkable hockey-stick in Q4 - which surely would only occur if things were strong enough to warrant the Fed pulling back in a reflexive vicious circle), the S&P 500 will trade at a rather expensive 19.5x P/E at end-2013 (which we are sure we will be told is still cheap).

Virtual currencies are not the only ones having a bad day, at least in USD-denominated terms (which for all those bullish BitCoin, or Gold, or Silver the fiat-alternative currency, not the asset, should make all the difference in the world - alas most people still don't grasp the difference). Another entity that has seen better times is the terrifying accident-magnet also known Carnival Cruises. Following what seemed an endless barrage of TV crews scouring Carnival cruise ships, bringing a new definition to the term "poop deck", the inevitable has finally happened: CCL has been forced to admit that absent changing something very drastically, it is doomed. And since it can't or won't afford to spend billions on CapEx to actually repair and modernize its assets (like virtually every other S&P500 company), it has done the only thing it can: crush prices, and pray to make up for this in volume and impulse purchases what it is about to lose in cruise revenues. As Bloomberg reports, in order to "entice" customers to come back to the good life, Carnival is now offering a cruise at the low, low price of $38 a night, or less than a stay at a Motel 8.

Just as we warned, the avian flu in China has had a very significant impact on its KFC chain

*YUM BRANDS MARCH COMP SALES DOWN 13% FOR CHINA UNIT     :YUM US
*YUM BRANDS: MARCH SAME-STORE SALES DOWN 16% AT KFC CHINA

It seems slashing prices did not do the trick - though we are sure this strain of the deadly virus is just a 'storm in a teacup' buying opportunity.

We will release the full list of named recipients once we get it, but here is what we now for now, via BBG and CNN:

• EMPLOYEES AT GOLDMAN SACHS, BARCLAYS, JP MORGAN, CITI, NOMURA, UBS, HSBC RECEIVED FED MINUTES EARLY YESTERDAY
• MOST OF THE BANK EMPLOYEES APPEAR TO WORK IN GOVERNMENTAL RELATIONS (Lobbies)
• ABA, SIFMA, SENATE STAFFERS RECEIVED FED MINUTES EARLY
• FED NAMES 154 RECIPIENTS OF EARLY RELEASE OF FOMC MINUTES
• FED MINUTES SENT EARLY TO BANKS, LAW FIRMS, PRIVATE EQUITY
• FED EARLIER SAID RELEASE WENT MAINLY TO CONGRESS, TRADE GROUPS
• NONE OF THE PEOPLE ON THE LIST ALERTED THE FED THAT THEY RECEIVED NONPUBLIC INFO A DAY EARLY

In other words: absolutely everyone who trades risk assets for a living.

Treasury yields finally got back up to pre-Payrolls levels today but there was no stopping stocks as the S&P 500 finally broke its all-time highs (and yay verily there was much rejoicing).USDJPY pushed on lower (despite a decent spike on early comments from Kuroda that 'the market misunderstood') edging ever closer to the magic 100 level. This JPY-cross weakness provided the ammo (along with a 5-6bps decompression in bond yields) to take stocks on to new highs (from Friday's close, JPY is down 2.28% vs the USD and AUD up 1.5%) Gold and Silver had a tough day, giving back yesterday's gains. The only stock index to lose today was the S&P Small Caps but Materials and Homebuilders lagged the market. Equities topped around the European close and from then channeled sideways (with a little 330pm ramp effort) but credit markets and VIX were not buying into this move at all. As the Nasdaq had it best day of the year, so Bitcoin, umm, didn't - losing over 50% of its highs intraday. Trannies are the best off the post-NFP gap-down-open, up an impressively ridiculous 4.7%.

While many of us have been shouting about this from the rooftops for years now, with each passing day it becomes more clear what a terrifyingly gigantic powder keg we have created.  There is no debate that this will end in a compete financial holocaust, the only question is when and how.  As time progresses, the practices and desperation of the status quo to keep the sheeple in debt and consuming is getting increasingly insane. Introducing the 97-month auto loan...

Good ideas are not impervious to the madness of crowds.--WB7

Despite the market knowing better, the so-called housing recovery has hit a speed-bump (or brick-wall). Goldman's housing swirlogram shows that the revisions from an exuberant few months into January 2013 have dragged the reality of the 'recovery' rotating into full-blown 'expansion' to a crumble back into 'contraction'. Of course, we have seen homebuilder stocks exuberant like this before in the face of disappointing facts, but even the NAHB (desperate to portray confidence) is 'admitting' things are not as rosy as all-time highs in stocks might suggest.

While every European leader, banker, street-sweeper has made a point to use the phrase "Cyprus was not a template" in the last few weeks since D-Boom dropped his tape-bomb, it appears that in reality plans continue to push ahead to indeed 'legalize' these confiscations. As Reuters reports, European Union ministers will consider a proposal this week to impose losses on short-term interbank deposits of lenders. The proposal is part of wider talks to consider when depositors should be bailed-in. Of course, it makes sense that banks should 'not' get special treatment for their overnight lending operations to one another, but the EU leaders want to ensure that these 'sacred' deposits do not escape confiscation, "while it is acknowledged that bailing in interbank liabilities may carry certain risks; on balance, it is preferable... that these liabilities are not excluded from bail-in". Of course, this will worry the ECB as they have worked so hard to unfreeze the interbank lending market post-crisis (with their direct backstops and intermediation). So while there is no template, and Cyprus is unique, it appears the new 'resolution' laws provide a clear plan (not template) for reaching all the way down the capital structure just as they did in Cyprus (and is legally correct from a pari passu basis).