Archive - May 2013

We made new all-time highs in stocks (easy); corporate and sovereign credit risk has been crushed to pre-crisis levels (passe); but the big kahuna was signalled today as we 'closed' above Dow 15,000 giving the red light to millions of the investing public that the water's warm (and asset-gatherers hungry). It seems no news is the best news (better than bad news and way better than good news) as for the 18th Tuesday in a row, we close green. The Dow Industrials may grab the headlines but the Dow Transports is up a mind-numbing 5.1% from Friday's NFP print (with the rest of the majors up a mere 1.7% or so). But... volume was below average; the 'most-shorted' names actually underperformed; VIX closed notably green; on-balance-volume was not supportive; credit markets pulled back notably today; JPY carry was not at all supportive today; and Treasury yields stalled their rise in the last hour.

These three charts suggest that all is not well with the ramp... but all that matters is a Dow 15,000 close...

The March consumer credit headline was a disappointment, increasing by just $7.97 billion, on expectations of a $15.6 billion increase, with the February total revised lower to $18.14 billion. So far so bad. It gets worse when one peeks beneath the surface and finds that discretionary consumer credit in the form of credit card and other revolving loans posted its first decline of 2013, dropping by $1.7 billion, the biggest decline since December's 2.1 billion. So what rose: why debt for purchases of Government Motors and student loans of course, which increased by $9.676 billion in March. In other words: the student bubble keeps getting bigger, more and more GM cars are being bought on subprime credit, while the vast majority of Americans can't even afford to charge toilet paper purchases as the discretionary deleveraging continues.

By now everyone knows that POMO is the daily physical manifestation of the Fed's love for the "1%", and the trillions in underfunded pension and stock-linked entitlements, taking place (almost) every day in the hours between 10:15am and 11:00 am Eastern, when the NY Fed's trading desk injects between $1 and $6 billion in the stock market. What many may not know is that while POMO was the name of the game since 2009 (just think where the S&P would be if the "market" was only open on Thursday, during the 45 minute duration of POMO, and between 3:30 pm and 4:15 pm), it may have finally met its homophonous match, courtesy of Citigroup. So step aside POMO. Presenting.... FOMO, or Fear Of Missing Out.

The venerable UBS floorman asks (and answers) an interesting question. With the re-institution of the payroll tax and higher level rates and with spending lowered by sequestration, will the Treasury need to offer fewer bonds? And if so, will the Fed remain steadfast in its purchasing 'size' (good for bond bulls since secondary demand will increase) or reduce its 'size' to meet the lower monetization needs of the Treasury (bad for equity bulls since flow is all that matters.) Thoughts below...

Wise words for fringe low brow trading types...

Since it is Tuesday, and since the bubble formerly known as the "stock market" is once again completely disconnected from reality, fundamentals, math, logic, gravity and everything else, and watching its relentless climb higher on nothing but central bank liquidity tsunami and attempts to hit any remaining upside ES stops is about as exciting as watching Bernanke print electronic money, here is a small diversion courtesy of @911Buff:

• NEW JERSEY: PHOTO - GARBAGE TRUCK DRIVER SNEEZED, LOST CONTROL AND SLAMMED INTO HOME.

And the result...

As we reported earlier, spending on home improvements has paradoxically tumbled, a fact which did not escape Santelli, who brings it up and gets the following logical response: "when the homeowner is confident about the future of price appreciation, they're willing to invest and remodel." And vice versa: so does that by impliation imply a slide in expectations about future home appreciation? Santelli's conclusion is, as usually happens, spot on: "who will remodel more: a homeowner or a renter?" The answer is self-explanatory, as is any doubt as to whether the US is becoming a nation of renters.

The biggest surprise from the JOLTS report is not in any of the standalone series, but in the time progression of the Net Turnovers number, which is simply the total new hires less total separations. Historically, the Net Turnover number tracks the total monthly nonfarm payroll change (establishment survey) on a almost tick for tick basis. Not this time. In fact as the chart below showed, the upward revised March NFP number to 138K, which preceded the even more optimistic, and much cheered April print of 165K, which sent the S&P and the DJIA soaring to new all time highs on Friday, not only did not get a confirmation, but in fact the JOLTS survey for Net Turnovers  - which came at only 46K in March compared to a revised 138K jobs added per the establishment survey - implied that the real NFP number in March should have tumbled to a level last seen in September of 2010!

Since the mid-November lows, the S&P 500 has gained a remarkable 268 points on the back of faith, hope, and Bernanke/Kuroda charity. But perhaps what is more mind-numbing is that this efficient market has given us more than 50% of those gains on Tuesdays. With 17 up-days in a row, Tuesday is the Monday dip-buyers dream. Since 1/18, absent Tuesdays, the S&P 500 has gone nowhere. Maybe Bob Geldof needs to write a new song for the US investor "I do like Tuesdays", or at least a slightly revised cover version of the Bangles' "Manic Tuesday".

The market is beyond overstretched at this point on a short-term, intermediate term, and long-term basis. The sheer number of warning signals is staggering.

The Cypriot deposit confiscation has come and gone (and in a parallel world in which the global Bernanke-put never existed and in which bank shareholders were not untouchable, this is precisely how real-time bank restructurings should have taken place), but fears remain that the country's "resolution" mechanism will be the template for future instances of "resolving" insolvent banks. That may or may not be the case: the only way to know for sure is during the next European bank bailout, but one thing is certain - Cyprus was certainly a template when it comes to how a world full of insolvent sovereigns (all engaged in currency warfare), where easing, quantitative or otherwise no longer works to boost the economy, will approach what is the last chance for monetary replenishment - taxation of financial assets, just as we warned first back in 2011. Specifically, Cyprus showed the "template" for confiscating Russian oligarch billionaire "ill-gotten", untaxed cash, which many in Germany demanded should be the quid for ongoing German-funded quo. And here's the rub. There is more where said "ill-gotten" cash has come from. Much more... $32 trillion more.

The debate rages... Soros: "The euro crisis has already transformed the European Union from a voluntary association of equal states into a creditor-debtor relationship from which there is no easy escape. The creditors stand to lose large sums should a member state exit the monetary union, yet debtors are subjected to policies that deepen their depression, aggravate their debt burden, and perpetuate their subordinate position. As a result, the crisis is now threatening to destroy the EU itself. That would be a tragedy of historic proportions, which only German leadership can prevent." Sinn: "Soros is playing with fire... Many investors echo Soros. They want to cut and run – to unload their toxic paper onto intergovernmental rescuers, who should pay for it with the proceeds of Eurobond sales, and put their money in safer havens... Soros does not recognize the real nature of the eurozone’s problems. The ongoing financial crisis is merely a symptom of the monetary union’s underlying malady: its southern members’ loss of competitiveness... His accusation that Germany is imposing austerity is unfair. Austerity is imposed by the markets, not by those countries providing the funds to mitigate the crisis."

Federal Reserve Chairman Bernanke is a Reverse Robin Hood, robbing from the lower 95% and giving to the financier class. It's worth understanding the mechanisms of this wealth transfer: in essence, the Fed extends low-cost credit (i.e. "free money") to the financier class which then uses this free money to buy rentier assets, that is, assets that generate economic rents for the owners, who add no value and create no wealth. This is of course the neofeudal model. Goebbels would approve of the Fed's masterful propaganda campaign: rob the bottom 95% to benefit the financier class, all the while piously proclaiming that its policies were aimed at increasing employment for the bottom 95%. In terms of propagandistic chutzpah, it doesn't get any better than this. Congratulations, Bernanke, Yellen, et al.

Gross: Dow hits 15,000 & PIMCO’s internal Corp & Hi Yield Index hits all-time yield lows. Thanks Chairman #Bernanke! Got any more?

— PIMCO (@PIMCO) May 7, 2013