Archive - May 14, 2013

It has become difficult to keep track of all the different "-gates" the Obama administration has suddenly found itself embroiled in: perhaps an appropriate name would be Gate-r-gate? And with the just concluded farce in which Jay Carney passed off all AP-related questions to Eric Holder, who in turn recused himself and told the media to please crucify the Deputy AG instead, it is unlikely that any material new information will be disclosed any time soon. However, courtesy of The Hill, we at least have some insight into the first gross offense by the administration revealed last week: the targeting of one political group over another by the supposedly impartial IRS. Specifically, attached below is the full 7 page questionnaire sent by the IRS to the Liberty Township Tea Party containing a list of 35 questions.

History never changes. Or, at least it changes very slowly indeed. So here we are, like those before us, warning of our own Great Depression, of our own World War, or of even larger cycles like the fall of the English, Spanish, or Roman empires. And so far as we can tell, few listen and nothing changes. Why? Because it isn’t time. Understanding long-term cycles, and how they shape our spectrum of responses in periods of crisis and transformation is key to comprehending what is to come (and how we will allow it to affect us). Do you really think your ancestors didn’t see the Depression coming in 1921 or in 1929? Of course they did. The Balloon Option-ARM mortgage had just been invented, creating a housing boom larger and even more groundless as our own, immortalized by the Marx Brothers in The Cocoanuts. They warned the world then just as we do now, and no one listened then, just as they don’t now. Why? It wasn’t time.

Despite efforts by the government to quell the black-market (or blue-dollar) for Argentina's foreign exchange, the unofficial rate surged yesterday to 10.45 Pesos per USD. This is now double the official rate of 5.22 Pesos per USD. This implicit 50% devaluation comes amid the growing realization that there is no savings option to maintain the purchasing power of the peso in the context of sustained high inflation (no matter what the officials say) and negative real interest rates. The government is not amused, suggesting the devaluation won't happen (just as Mexico did right up until the day before they devalued), "those who seek to make money at the expense of devaluations must wait for another government." Perhaps the government should be careful with their threats? And of course, this could never happen in the US or Japan, right?

From one farce to another:

• *HOLDER SAID TO RECUSE HIMSELF FROM AP PHONE RECORDS CASE
• *HOLDER SAID TO RECUSE HIMSELF BECAUSE HE WAS QUESTIONED IN CASE

Yesterday, the Associated Press revealed the Department of Justice had been secretly monitoring both the personal and work phones of numerous AP editors and reporters. So just what did Holder know? For now, it is not known if Holder authorized or even knew about the investigation.

Yesterday was another less than convincing session. Indices off recent tops and Europe weaker. Treasuries tumbled then rallied part way back on less than stellar retail sales report. It rather feels like we are going through the motions with little conviction one way or another (even with today's mini-melt-up). Markets crave direction. What I'd like to see is the JGB curve bull-flatten to restore faith in Global easing and the asset grabathon. Don’t fight Kuroda – it will happen.. but when? That's the macro-trade. But the short-term trade may be to hedge some risk, like the Nikkei's recent gains, and think about how to hedge bursting bubble risks in the credit markets. Or is there something bigger going-on just behind the horizon? A "No-See-Em" that is about to confirm a particular market direction? After all... the global economy is either growing, is set for growth, or this recession is becoming a long-term depression. So let’s take a look at what's going on for signs of the hidden menace...

Why There Is So Much Pro-War Reporting

Curious how the student loan bubble, just shy of $1 trillion, and now the largest debt portion of the US household non-mortgage wallet,  bigger than credit card and auto loan debt - affects your state? Then the following three charts just out from the NY Fed are for you. What the data shows is that less than 12% of the population in Hawaii has student loans, while the record is in D.C. at over 25%. All those "students" in the nation's capital. Really? But that's not all. While the average loan balance is under $21,000 in Wyoming, it is once again highest in D.C., with the average loan balance over $40,000. It is almost as if D.C. "students" have learned how to game the system.

Not even the most prodigious and reckless money-printing binge can fix it

Will it be Benghazi? or the IRS Witch-Hunt? Or the AP Hack? Or how great the economy must be doing since stocks are surging? Or will anyone who asks questions be subject to immediate audit? Or are all questions moot? After all the White House knows precisely what will be asked long in advance...

When the head of the world's largest bond fund starts paraphrasing war-time phrases, you know nothing is what it seems...

Gross: Never have investors reached so high in price for so low a return. Never have investors stooped so low for so much risk.

— PIMCO (@PIMCO) May 14, 2013

It seems to us that this can only end one way and the fight on the beaches this time will be between economic reality and central-bank-inspired mass hypnosis.

Power corrupts buffoonery...

It is not immediately clear how much of the net drop in mortgage balances from $8.033 trillion to $7.932 trillion was due to defaults as opposed to actual pay downs and non-credit rating impairing deleveraging. We do know that a whopping $577 billion in new mortgages were opened in Q1, the highest since Q3 of 2007.  Which means that some $680 billion in mortgages should have been extinguished in one quarter. If this happened primarily via defaults and discharges, one can only wonder just how the bank balance sheets were not decimated in Q1. As a reminder, half a year ago we observed that the bulk of US mortgage debt reduction has come from defaults not from actual deleveraging.

The market is beyond overstretched. We have not had a 5% correction in six months. Stocks have gone almost straight up for 89 days (we haven’t had a 3+day correction in that long).  This is an all time record. The last time stocks rallied without a 3+ day correction was in the buildup to the Crash of 1987.

Lumber is limit down once again. It has been falling now for two months in a very 'non-housing-recovery'-like manner. Of course, when Lumber prices are rising, everything is bullish and it merely serves to confirm the exuberance and bias to optimism that we should all have. However, just like the Baltic Dry Index, when it's falling it is a bullish sign that the market is over-supplied in anticipation of good things to come. With Lumber's two-month lead over stocks signaling the equity market may well be a little ahead of itself, it seems the supply-demand balance is off in the construction materials business (which one is off - supply or demand) but have no fear, just as with the Baltic Dry, it will come back if we just keep hoping. Or did the actions of a central-bank inspire confidence once again in the 'wrong' industry and spark another mal-investment boom?

Up 195% from the Nov 2008 lows, the Nasdaq-100 has now broken back above the magical 3000 level. A level first seen in Nov 1999 (back then it took 4 more weeks to hit 4000). How long until CNBC adds a countdown timer to the Nasdaq all-time high?