Archive - May 16, 2013

It's just getting plain stupid out there. Just as stocks were exploding into the green (perhaps on expectations of an epic Philly Fed miss), the Philly Fed did not disappoint, printing at -5.2, down from 1.3, and crushing expectations of an increase to +2.0, the biggest miss since February and confirming that the Empire Fed index plunge was not a fluke. Virtually every components in the Philly Fed was red except for Inventories (up to 4.1 from -22.2 in March) and Prices Paid (up to 6.9 from 3.1 in March). Among the plungers, the key New Orders tumbled from -1.0 to -7.9, Shipments crashed from 9.1 to -8.5, Average Workweek slide from -2.1 to -12.4, and the Number of Employees imploded from -6.8 to -8.7, the lowest print since September 2009. And if all of this doesn't send the Stalingrad & Poor 500 to new historic highs, we don't know what will. All one can do now is just laugh at this "market."

The S&P 500 has managed to get back into the green; VIX is back above 13; and 10Y yields are down 4bps... 'new normal'

China's demand for gold jumped 20% to 294 tonnes in the first quarter of 2013, while global gold demand overall slid 13% thanks to the dramatic rotation of demand from paper to physical. Chinese demand in gold bars and coins grew to 109.5 tonnes - more than double the five-year quarterly average of 43.8 tonnes. Central banks added 109.2 tonnes of gold to their reserves in Q1 2013, the ninth consecutive quarter of net purchases. But it was the Q1 ETF outflows of 176.9 tonnes, equating to a 7% decline in total gold ETF holdings that obscured the strong rise in investment for gold bars and coins at the retail level. In the face of the huge 'paper' gold ETF outflows, 'physical' gold demand surged to its highest in 18 months...

It is no secret that in addition to the well-known phenomenon of "foreclosure stuffing", one of the primary drivers of the artificial housing "recovery" has been the surge of hedge funds and asset managers into purchases of rental units courtesy of near-zero cost REO-to-rent federal lending facilities, which have taken out distressed inventory from the market in hopes of converting it into rental. This has manifested in a surge in multi-family starts which have been the primary driver behind the rise of housing starts in the past several years, even with single-family units barely moving higher. All this despite Och Ziff making the case loud and clear late last year, that the days of profitability of this strategy have come and gone. Today we got the first confirmation that other asset managers may have finally given up on the rental conversion strategy, following the observed collapse in multi-family housing starts which crashed from 376K to 234K in April (the lowest since last summer), a drop of 142K and the worst monthly drop since 2006 when the housing market had once again peaked and was about to undergo a very serious correction.

Recently in the United States we’ve heard news that the IRS (Internal Revenue Service) is guilty of discriminating against conservative “non-profit” or not-for-profit entities.  Any group with the name “Patriot” or “Tea Party” in their name was immediately held as suspect and the IRS in essence dragged their feet in terms of granting them a non-profit status. 

We didn't really need a confirmation that the economy was deteriorating and completely disconnected from the "market", but we got it nonetheless. First, Initial Claims coming at 360K, on expectations of 330K, the worst print and worst miss in six weeks, confirming that weekly data is largely noise and that there is no sustainable downward trend. The May 11 weekly print adjusted and unadjusted were 360K and 318K respectively, virtually unchanged from a year ago at 373K and 325K, showing that in one year there has been essentially no progress, and that weekly initial claims of 350K is the new normal. Of course, the last week's print was also revised higher from 323K to 328K, while initial claims also missed expectations of a round 3MM print, instead printing at 3009K.

Obviously with Buffett a major shareholder of Moody's, the only place where a downgrade of Berkshire could come from was S&P. Moments ago, the rating agency that dared to downgrade the US for which it is being targeted by Eric Holder's Department of "Justice", did just that.

Two weeks ago, when we reported on the news of yet another aerial assault by Israel on Syria, we said that "while speculation a US-led escalation is ripe, the lack of any US naval support (as shown by Stratfor's naval update map from May 2) off the coast of Syria likely makes any immediate war is hardly likely, or that Israel will be on its own for at least the foreseeable future." Today this is no longer the case, following news that the US amphibious assult ship, LHD 3 and its cargo of the 26th Marine Expeditionary Unit, have arrived in Eilat, Israel for a "reguarly scheduled post visit." Amusingly, the US Navy was very quick to point out that "This visit is not associated with, nor a reaction to, any world events." Just purely accidental then.

• As scandals mount, White House springs into damage control (Reuters)
• Glencore Xstrata chairman ousted in surprise coup (Reuters), former BP CEO Tony Hayward appointed as interim chairman (WSJ)
• JPMorgan Chase asks Bloomberg for data records (Telegraph)
• Platts Retains Energy Trader Confidence Amid Price-Fix Probe (BBG)
• Syrian Internet service comes back online (PCWorld)
• Japan Q1 growth hits 3.5% on Abe impact although fall in business investment clouds optimism for recovery (FT)
• Soros Joins Gold-Stake Cuts Before Bear Market Drop (BBG)
• Factory Ceiling Collapses in Cambodia (WSJ)
• Sony’s $100 Billion Lost Decade Supports Loeb Breakup (BBG)
• Snags await favourite for Federal Reserve job (FT)
• James Bond’s Pinewood Turned Down on $300 Million Plan (BBG)

Remember when several months ago Wal-Mart leaked just how weak the economy was and that sales had been a "total disaster" (a piece of truthiness that promptly led to the termination of the leak source)? Guess what: they were not lying. Moments ago WMT reported Q1 results, which at the easily fudged bottom line were just in line with expectations, ot $1.14 driven by $2.2 billion in stock repurchases (30 million shares). However, it was sales, as warned, that came in well weaker than expected, posting at $114.2 billion on expectations of $116.1 - just as the guy warned. It gets worse:

• Q2 EPS expected in the range $1.22-$1.27, on expectations of $1.29
• Q1 comps ex-fuel -1.2% vs Exp. 0.4%
• Sam's Club implements first fee increase since 2006: raises membership fee to $45 nationwide
• During the 13-week period, the Walmart U.S. comp was negatively impacted by a delay in tax refund checks, challenging weather conditions, less grocery inflation than expected and the payroll tax increase. Comp traffic was down 1.8 percent, while average ticket increased 0.4 percent.

From the CFO, Charles Holley: "Although we believe our company will leverage expenses for the year, the second quarter will be challenging, given expense pressures in International and our corporate area.

In a world in which fundamentals no longer drive risk prices (that task is left to central banks, and HFT stop hunts and momentum ignition patterns) or anything for that matter, it only makes sense that the day on which Japan posted a better than expected annualized, adjusted Q1 GDP of 3.5% compared to the expected 2.7% that the Nikkei would be down, following days of relentless surges higher. Of course, Japan's GDP wasn't really the stellar result many portrayed it to be, with the sequential rise coming in at 0.9%, just modestly higher than the 0.7% expected, although when reporting actual, nominal figures, it was up by just 0.4%, or below the 0.5% expected, meaning the entire annualized beat came from the gratuitous fudging of the deflator which was far lower than the -0.9% expected at -1.2%: so higher than expected deflation leading to an adjustment which implies more inflation - a perfect Keynesian mess. In other words, yet another largely made up number designed exclusively to stimulate "confidence" in the economy and to get the Japanese population to spend, even with wages stagnant and hardly rising in line with the "adjusted" growth. And since none of the above matters with risk levels set entirely by FX rates, in this case the USDJPY, the early strength in the Yen is what caused the Japanese stock market to close red.

Information, Inspiration, Influence: No longer locked in the iron grip of Big Media?