Archive - May 2013

Sparked by the police shooting of a machete-wielding 69 year-old man, traditionally calm-and-collected Sweden is suffering amid its third night of riots. It seems underlying tensions from high youth unemployment and rising nationalism against the nation's large immigrant population have been catalyzed by this seemingly unrelated event. As the Daily Mail notes, immigrant ghettos have been created where unemployment is high and there are few opportunities for residents with left-leaning commenters adding that the riots represented a 'gigantic failure' of government policies, which had underpinned the rise of ghettos in the suburbs - "We have failed to give many of the people in the suburbs a hope for the future." An anti-immigrant party, the Sweden Democrats, has risen to third in polls ahead of a general election due next year, reflecting unease about immigrants among many voters. What is driving this tension? After decades of practicing the 'Swedish model' of generous welfare benefits, the country has been reducing the role of the state since the 1990s, spurring the fastest growth in inequality of any advanced OECD economy. Given Sweden's 24.7% youth unemployment, we wonder just what will happen to the 60% of unemployed youths in Greece and Spain when school lets out this summer?

Perhaps the best answer to the question posed to Bernanke moments ago whether US unemployment is structural or cyclical comes courtesy of Microsoft, which announced earlier that it was set to hire "several thousand" workers. Sadly, the catch is that the hires will be in China.

In about 15 minutes, the silver price rose 2.2%. In about 15 minutes more, the price fell back to where it had been. Whiskey Tango Foxtrot.

The fundamentals of the platinum and palladium markets are beginning to receive market attention and not before time. The positive supply demand dynamics are leading to increased investment demand as seen in the ETF data and Chinese demand rising again due to both industrial and jewellery demand.

MOAR Orderly... oops... Bernanke: "Fed could reduce bond purchases in the next few meetings if data supports it" and perhaps most disturbing is that reality is finally seeping into the corner offices of the Marriner Eccles building when Bernanke says that concerns about "frothiness" and "bubbles" has increased? Was it the sub-5% yield in high yield that tipped them off?

News That Matters - Today's news in brief

'Orderly'...

Update: Bubbles Bernanke slams any hopes for tapering goodbye, as long predicted: PREMATURE TIGHTENING RISKS SLOWING OR ENDING RECOVERY

Bernanke's quarterly hearing with the Joint Economic Committee this morning will be today's must-see event (with FOMC minutes a close second). It seems the equity market has no fears but many in the high-yield market are anxious for the words 'frothy', 'taper', 'bubble', 'clueless', and 'I plead da fif'.  While Bernanke's words will be the most important, these hearings typically include their fair share of ironic ignorant 'humor' from the politicians who sit in awe of the most powerful man in the world and his CTRL+P prowess.

Or maybe this is a trick question, and the answer for the "New Normal", when all central banks are coordinating on reflating the biggest asset bubble of all time, is "all of them"...

As we noted yesterday, the IRS' head of exempt organizations who started the whole IRS targeting scandal, is testifying this morning and is expected to plead the Fifth. One wonders why, if as the IRS claims, there was no illegal or illicit activity involved. Watch her plead "da Fif" live here...

Global risk appetite surged to 4.53 (5 being 'euphoria'), its highest level since the euphoria event of 2006, and up from 1.76 one month ago according to Credit Suisse. Other risk appetite indices, as well as market anecdotes, confirm the “almost euphoric” environment. US credit risk appetite has charged higher and is now at 3.22. Furthermore, as they note, the current risk rally has several unusual features. First, it clearly lacks the usual support of strong global growth momentum. Global IP momentum (as we noted here) is almost always above its long-term average when risk appetite hits euphoria, but currently is below 5%, which is somewhat sluggish. Second, the current near-euphoria is strongly driven by one asset class: Japanese equities. The bottom-line, they conclude, is that the current risk-loving environment is related much more to recent policy innovations than growth data. And confirming this 'euphoria' Investors Intelligence notes that newsletter writers classified as bulls rose to 55.2% from 54.2% with readings of ~55% "suggestive of a trading top," last seen in Oct. 2007. No surprise there but with markets statistically 'euphoric' caution seems warranted at least...

A week ago it was the better than expected weather's fault for the big Wal-Mart miss. Today, it is the turn of that other retail bellwether, Target, to blame sunny days. From the release: "Target’s first quarter earnings were below expectations as a result of softer-than-expected sales, particularly in apparel and other seasonal and weather-sensitive categories,” said Gregg Steinhafel, chairman, president, and chief executive officer of Target Corporation. “While we are disappointed in our first quarter performance, we remain confident in our strategy, and we continue to invest in initiatives, including Canada, our digital channels and CityTarget, that will drive Target’s long-term growth."

For all those curious why all real money managers (and not those who spend 18 hours a day on the modern day Yahoo Finance known as Twitter, "trading" with monopoly money while selling $29.95 newsletters) are furious at what Bernanke and company are doing as shown in the most recent Ira Sohn conference, we present the chart below from Goldman which confirms what most have already known: the Federal Reserve has made hedge funds a thing of the past, whose investors are sure to keep underperforming the S&P until the moment when it all goes tumbling down.

Unless there's a shock to the system when people start seeking safety, there's not much upside momentum for gold.

We would have been perfectly happy to report this as Humpday Humor, but unfortunately, and only in America, can a disgraced former Congressman, the very appropriately named Anothony Weiner, announce his candidacy for NYC Mayor via YouTube in all too serious news.