Archive - Apr 2013

Spot the common thread: Chicago PMI, manufacturing ISM, ADP and now Non-manufacturing ISM. If you said all big misses, give yourself a pat on the back. Because in the New Normal, the recovery apparently goes backward and downward especially when funded by what is now some $400 billion in QEternity. Despite expectations of a modest decline from 56.0 in February to just 55.5, the March Services ISM dropped to 54.4, the lowest since August, and the biggest miss in one year, with the critical New Orders components declining by 3.6 to 54.6, Employment down by 3.9 to 53.3 - the lowest since November, and Exports down 4 with imports up 5 surely doing miracles for GDP. Why the big miss? Three reasons: the post Sandy rebuilding effort is over; the abnormally strong winter seasonal adjustments have phased out and now is the time to pay the piper, and of course, the complete collapse in global trade as we have been hammering for the past year, now that Europe is in the worst depression since the 19th century. But don't worry: there is a POMO for that, and for everything else to give the impression that just because the Bad Bank formerly known as the Fed will onboard every piece of toxic garbage that is not nailed down, one can safely ignore reality for ever and ever.

The story of ex-Goldman's prop-trader Matt Taylor is well known: in November of last year, he was accused by the CFTC of concealing a massive, market-moving $8.3 billion ES position, and was charged by the CFTC, who sought a whopping $130,000 in penalties for what was obviously an attempt to move the market using size and scale (a la Bruno Iksil) on December 13 and 14, 2007. Taylor, who left Goldman in 2008 because apparently his attempt had been discovered amid allegations of "conduct related to inappropriately large proprietary futures positions in a firm trading account" and ended up working as Co-Head Single Stock Derivatives at Morgan Stanley until July 2012, prudently denied all accusations. However, roughly an hour ago, news broke that he had finally turned himself in to the Feds and is now expected to plead guilty to what for now are still unclear criminal charges.

Think only Cyprus is where the government goes after "evil", tax-evading oligarchs? Think again. Overnight news broke that the Italian police have seized a record $1.7 billion in cash and property from a single person, a Sicilian "alternative energy" entrepreneur alleged to have close ties to the Mafia. As Bloomberg reports, Italy's anti-Mafia investigators said in a statement today that Vito Nicastri, a 57-year-old native of Alcamo, near Trapani, was placed under surveillance and must remain in Alcamo for three years. He is accused of declaring for tax purposes a fraction of the value of his businesses. Italian media have dubbed Nicastri the "king of alternative energy" for his vast holdings in wind farms and photovoltaic cell companies. Police said the seizures include 43 companies; 98 pieces of real estate including buildings, homes, stores and land; 66 bank accounts, credit cards and investment funds. And so, in two brief weeks, cash-strapped European nations have declared war on both Russian billionaire oligarchs and the Sicilian mafia. One wonders how long until Swiss authorities follow suit and "impair" Triad and Yakuza savings in Zurich and Geneva, and sets off a global "us versus them" scorched earth war?

EU President Barroso proclaimed this morning that Europe is "through the worst of the crisis" and yet the ECB's policy transmission channels are so fragmented - and the economies of the disparate union so in need to help - that Draghi and his fellow planners are re-discussing ways to directly lower the interest-rate burden for small-to-medium-sized businesses (SMEs). Germany's Die Zeit reports that the concept of the ECB lowering its standards once again to accept SME loans as collateral for lending to its member banks since, as we noted here, the ECB is basically impotent with regard juicing anything in the real economy. So the ECB is willing to step in and sacrifice its balance sheet (and the taxpayers of Europe - Germany - that implicitly backstop it) to ensure SMEs get funded at sub-market rates that banks are unwilling to accept on a risk-adjusted basis? What could possibly go wrong?

It is not that one market is in a bubble it is that they all are in a bubble. We were all taught that the markets eventually get back to fundamentals. It is not that we have forgotten this; it is that the supply of money has trumped the notion. Yet we amble on because it has been the winning strategy and we play to win. When yields are this low it is not "better to be safe than sorry" but "better to be safe then dead" as the amount of time that it will take to make back any mistakes could end you and your firm given the duration of any correction that you might attempt. It is not that one market is in a bubble it is that they all are in a bubble. It is not that the world is devoid of crises. It is that the supply of money acts as a painkiller and that the markets have become mostly numb.

You know, there's never just one roach. The deeper you look, the more you're likely to find. Just sayin...

Remember the now traditional economic data weakness that the US experiences come every Spring in the past 3 years courtesy of the rotation out of artificially boosting winter seasonal adjustments? Well, after a big miss in the PMI and ISM we may be getting just that, with the ADP private payrolls data moments ago posting the lowest monthly increase since October at just 158,000, well below the 200,000 expected, and far below last month's revised 237,000 (was 198,000), which means that post the revision the February number is just 1,000 off the NFP print of 236,000: ADP, under Mark Zandi, now and always desperately trying to be a BLS echo chamber. Notably in the breakdown of jobs, March saw +0 Construction jobs added: hardly the stuff great housing recoveries are made of. The good news, if any, is that small business finally were the biggest generator of jobs, adding 74,000, or just less than half of total, with medium and large accounting for 37,000 and 47,000 respectively. And since, empirically, the revised ADP methodology has been far more accurate than previously, the question is how to pre-spin this Friday's jobs number, which stands at the near-ADP consensus of 196,000, which suddenly looks far more in peril of a downside miss.

Physical gold and silver demand remains robust in many markets internationally. Demand from the Middle East remains robust as seen in the near record imports of gold and silver into Turkey. Turkey’s gold imports climbed to an eight-month high in March as prices averaged the lowest since May, according to the Istanbul Gold Exchange. Silver imports rose 31% from a month earlier according to Bloomberg. Gold imports increased to 18.26 metric tons, the most since July. That’s up from 17.34 tons in February and compared with 2.91 tons a year earlier, data on the exchange’s website show. The country shipped in 120.8 tons last year. Turkey was the fourth-biggest gold consumer in 2012, according to the London-based World Gold Council. Bullion averaged $1,593.62 an ounce last month and is trading about 17% below the record nominal high of $1,921.15 set in September 2011.

• Cyprus leader invites family firm probe (FT)
• How the Fed fueled an explosion in subprime auto loans (Reuters)
• Wal-Mart Customers Complain Bare Shelves Are Widespread (BBG)
• JC Penney CEO gets no bonus, stock award after dismal year (Reuters)
• New Bird Flu Virus Kills 2 in China, Sparking WHO Probe (BBG)
• Algorithms Play Matchmaker to Fight 7.7% U.S. Unemployment (BBG)
• Fed hawk Lacker and dove Evans face off over inflation (Reuters)
• Infamous silver market "cornerer" WH Hunt Becomes Billionaire on Bakken Oil After Bankruptcy (BBG)
• Japan Auto Sales Fall on Subsidy End as Korea Extends Drop (BBG)
• Black Hawks Near North Korea Show Risk in U.S. Command Shift (BBG)
• SEC Embraces Social Media (WSJ)
• Tesla Touts ‘True Out of Pocket’ Financing for Model S (BBG)
• U.K. Banks Try to Dodge Bonus Caps by Defining Risk-Taker (BBG)

The driftless overnight sessions are back. After the Nikkei soared by 3% following several days of declines, and the Shanghai Composite continued its downward ways despite Non-Manufacturing PMI prints for March which rose both per official and HSBC MarkIt data, Europe was unsure which way to go, especially with the EURUSD once more probing the 1.28 support level. The USDJPY was no help, and even with the BOJ meeting at which new governor Kuroda is finally expected to do something instead of only talking about it, imminent, has hardly seen the Yen budge and provide the expected carry-funding boost to global risk. In terms of newsflow there was little of it: European CPI in March printed at 1.7%, above expectations of 1.6%, but below February's 1.8% rise in inflation. UK continued telegraphing the inevitability of Mark Carney's imminent QE, with construction PMI the latest indicator missing, at 47.2, below expectations of 48.0 (above 46.8 last).  Elsewhere, Spanish Prime Minister Mariano Rajoy on Wednesday called for Europe to implement growth policies to balance its austerity drive and for countries with room for fiscal manoeuvre to increase public spending. "Europe is the only region in the world in recession. To overcome this situation we need three things: every country needs to do its homework, we need more (European) integration and we need growth policies," Rajoy said in a televised speech to leaders of his People's Party. "That's why countries which can afford it should spend more." Surely Europe will get right on it: after all, it's only "fair."

I asked the question: is Bitcoin money? (It's price sure is rising parabolically like silver in 2011) In brief, I said no it’s an irredeemable currency.  This generated some controversy in the Bitcoin community.  I took it for granted that everyone would agree that money had to be a tangible good, but it turns out that requirement is not obvious.  This prompted me to write further about these concepts.

Is Fukushima Causing Health Problems In the United States?