Archive - May 2013

Following up on the earlier report that Israel had warned the US that Russia was preparing to sell "advanced" military equipment to Syria (in False Flag Broken Telephone fashion), it was only a matter of time before the new US Secretary of State voiced his indignation over a development whereby someone else was providing arms to a conflict country's government, instead of the US providing its own weapons to said country's Al Qaeda-assisted rebel forces. Sure enough, he did: "I think we have made it crystal clear that we would prefer that Russia is not supplying assistance," Mr. Kerry said at a news conference after meeting the new Italian Foreign Minister Emma Bonino." While there was no immediate quote substantiating it, there is a rumor that Russian foreign minister Sergei Lavrov's response was a less than politically correct phrasing along the lines that he "would prefer that the US not supply assistance to Syrian rebels."

S&P 500 futures are currently experiencing the largest intraday drop in May - seemingly set off by this which was largely a joke uttered about an hour ago...

Over/under on a 3pm Hilsenrath article hinting tapering is coming sooner than later

— Andrew Yorks (@andrewyorks) May 9, 2013

... Which promptly escalated into a full-blown rumor that Hilsenrath is about to issue an article heralding the end or tapering of QE.

Sigh.

This is not Thursday Humor - though perhaps it should be. First, the Japanese promoted bond-buying as not just patriotic, but a manly endeavour that will get you the girls; but now the idea of inflating assets has been taken one step further. The Japanese have argued that 'sex sells bonds' in the past but now, as Reuters reports, the lingerie-maker Triumph's Japanese division has launched a special edition "growth strategy" Abenomics Bra. "We hope that, as the Japanese economy grows, we can also help bust sizes to get bigger," a spokewoman noted as the bra features a rising trendline, three arrows pointing up, and promises a 2% increase in volume with extra padding. The analogy of an exogenous force maintaining a natural force at an unsustainable size is just too easy - as, just as in the real-life, at some point that 'supportive bra' of monetary policy has be removed.

The number of people on SSDI now exceeds the entire population of Greece. The aging of the population has nothing to do with the increase. In 1968 there were 51 workers for every person on disability. Today there are 13 workers for every person on disablity. Even the most pollyanna would agree that medical advancements since 1968 have been significant. These medical advancements would argue for less people being on disability and unable to work. Workplace safety measures have been increased exponentially since 1968, so that also argues for less disabled workers. The good old ADA law forced all workplaces to become disabled friendly. That argues for less people on disability. The country has transitioned from a manufacturing society to a service society. Workers don’t work on dangerous assembly lines anymore. Robots do the dangerous stuff. This should have dramatically reduced worker injuries and disabilities. The tremendous increase in people on SSDI is nothing but a gigantic fraud. The government broadened the scope of disabilities to include stress, depression, and non-diagnosable things like aches and pains. And don't forget, you get the added benefit of Medicare coverage after only two years of SSDI stress.

The morning started off with the ubiquitous JPY-carry spike pre-US-open and has now extended (post the 30Y auction) to the new normal 140 pips rise to break the magical 100 JPY level to the USD. It has been seven months since Shinzo Abe first hinted at his extreme policy prescription for his ailing nation. Since the start of October 2012, the JPY has lost 30% of its value and the FX-carry market's holy trinity of Aso-Kuroda-Abe can wave their initial "mission accomplished" banners this evening. Fifth time was the charm it seems as after four times trying and failing in the last month, USDJPY has just passed the 100 level for the first time since April 2009 - and while Abenomics lives on, it was initially 'designed' to bring the JPY back into line after its massive strengthening post the crash lows in 2009. Interestingly, USDJPY risk-reversals (from the FX option market) suggest traders are less confident that the devaluation continues apace. We shall see...

Normally the New York Fed would not have to bother itself with such Series 7, 63-registration requiring, "financial advisor"-type things as predicting where the stock market will go, especially when it is its own trading desk that provides the impetus for more than 100% of the current equity rally. However, these are not normal times - they are New Normal. And as a result, Fed economists Fernando Duarte and Carlo Rosa have penned a "research" paper titled "Are Stocks Cheap?" in which they view the same reflexive "evidence" that Ben Bernanke himself used to answer a question during a recent press conference if he would still be buying stocks at record levels, namely the risk premium. This is what the NYFed's economists say on the matter: "We surveyed banks, we combed the academic literature, we asked economists at central banks. It turns out that most of their models predict that we will enjoy historically high excess returns for the S&P 500 for the next five years."

When this bubble bursts, interest rates will already be at zero and the Fed’s balance sheet swollen with garbage debts. The Fed and other Central Banks WON’T have the usual tools available to save the day.

Following yesterday's poor 10 Year showing, which was stock positive (because apparently less demand for bonds means more demand for broken casino products), today moments before the pricing of today's finally for the week $16 billion 30 Year auction, the DJIA ramped again to fresh all time highs on hopes the 30 year would be disappointing. Yet despite a When Issued trading at 2.99%, the 30 Year actually came better than expected at 2.98%, which should have led to a stock sell off, but instead the ramp USDJPY for any reason algos took over, and the stronger auction led to a spike in the USDJPY which in turn pushed stocks even higher. Yes, that is how the stock market "works" in New Normal when broken signals translate, according to algos which confuse price for yield, into completely illogical moves by assorted asset classes. As for the 30 Year auction, it was stronger in virtually every regard: a Bid to Cover that came at 2.53, or higher than the 2.49 from April, a high yield of 2.98%, less than the 3.00% previously, and an Indirect take down of 38.8%, higher than April's 31.4%. So much for all those who saw that last hour of trading and extrapolate it through 2020, seeing yet another return of the Great Rotation or whatever.

Intra-market breadth is deteriorating, suggesting fewer and fewer stocks are actually contributing to the current rally in global equities... It seems that all that can break us from this current index-driven 'melt-up' is hot or frigid data that confirms the economy is breaking out of its languid range (though it appears credit is starting to make that decision earlier than stocks).

Four of them are beyond any kind of democratic control, beholden only to the elite club of unelected Eurocrats, the European Council.

Jewellers across the world are seeing a surge in jewellery purchases because consumers are taking advantage of the price drop and purchasing investment pieces that will grow in value over time.

In the USA with Mother’s Day approaching this weekend, consumers like Whitney Court who would normally buy flowers instead wants to purchase something that won’t wilt: a silver necklace. 

While the Greek economy remains under the proverbial knife of the Troika, it appears the wealthy in the island nation are transforming themselves at record rates. Der Spiegel reports that not only does Greece have the second highest rate of cosmetic surgery per capita in the world but thanks to a slumping economy, surgeons have cut prices by up to 40% and rich Greeks are tucking, lifting, and firming at record rates...

Proving that in Europe the logic behind the saying that "the beatings will continue until moral improves" is alive and well, was the announcement by the Cyprus central bank head Panicos that capital controls in the country will remain in place until confidence returns. We'll let that sink in for a minute."Panicos Demetriades said the Central Bank wants to eliminate these controls as soon as possible, but it has to first make sure that trust in the banks has recovered sufficiently. He said a rush of withdrawals would put additional strain on the banks that they can hardly afford right now."

The Treasury market can rest assured that the Republican-'owned' House has done its very best to avoid a default on the debt securities of the US. The 'debt prioritization' bill narrowly passed the House 221-207 amd now moves on to the Senate where it stands a snowball's chance in hell of passing. Let the Grand-Standing begin... Meanwhile, US 5Y CDS rose modestly to around 35bps (from 31bps) - but remains near post-crisis lows.

Since the end of the recession businesses have been increasing their bottom line profitability by massive cost cuts rather than increased revenue.  Of course, one of the highest "costs" to any business is labor.  One way that we can measure this view is by looking at corporate profits on a per employee basis.   Currently, that ratio is at the highest level on record. The problem that businesses are beginning to face currently is that while they have slashed labor costs to the bone there is a point to where businesses simply cannot cut further.   At this point businesses have to begin to "hoard" what labor they have, maximize that labor force's productivity (increase output with minimal increases in labor costs) and hire additional labor, primarily temporary, only when demand forces expansion. The issue of "labor hoarding" also explains the sharp drop in initial weekly jobless claims. This is likely obscuring the real weakness in the underlying economy.  Without an increase in the demand part of the equation businesses are likely to continue resorting to further productivity increases to stretch the current labor force farther to protect profitability.  However, as we may currently be witnessing, businesses may be reaching the limits of what they can do.