Archive - Jun 25, 2013

There are a number of factors behind the widening canyon of economic inequality, but the primary driver is financialization. Financialization has given those with capital and access to financier expertise ways to skim great wealth from the system without creating any value whatsoever. The hidden toxin in financialization is the resulting concentration of wealth can buy concentrations of political power. Financialization is thus self-perpetuating: once the skimming operations generate billions of dollars in profit, it only takes a relatively small piece of these profits to buy/influence the political class. Once the politicos are in your pocket, the regulators and judiciary fall into line or are marginalized by new statutes or gutted budgets. Financialization is the disease eating away the heart of the economy and what's left of democracy.

Given the earlier rumors of PBOC bailing out the funding markets (followed rapidly by their actual denial/explanation of what is going on which is much less supportive than an exuberantly bouncing market implies), it is perhaps ironic that the nation's government mouthpiece - The People's Daily - explains that help is not coming:

A bailout of the stock market is not beneficial to the development of a sound capital market, although some analysts are suggesting the China Securities Regulatory Commission and the People's Bank of China should intervene

Indeed; it seems the Communist party did learn something about the failures of the US' version of Capitalism and the snowballing impacts of bailout-based unintended consequences.

It's been quite a morning. Beats across the board at the macro headline level. Housing (prices and sales), check; Durable Goods, check; Confidence, check; Richmond Fed, check. So why are stocks not surging?

And What About Your Smart Meter?

With Case-Shiller breaking records and even the typically less sanguine Bob Shiller noting (looking in the rear-view mirror) that things are not terrible in the housing market, it appears it is time to play 'flip that house' in these exuberant cities. While not as ready to pop as Yuma, AZ, these are the fastest year-over-year gains for the most 'bubbly' cities in 7 years. What could go wrong? Though, we note, you better have lots of cash because the mortgage market has effectively been slammed shut...

Everyone knows Europe is insolvent; the only question is "when" will Europe be forced to finally admit this truism. The long overdue house of cards may start toppling in as little as 6 months, as The Telegraph reports, Mediobanca's 'index of solvency risk' suggests "time is running out fast" for Italy. With the breakdown in Eurozone talks on a banking union and the Fed's shift in policy, Europe "has become a dangerous place," warns RBS. Unless Italy can count on low borrowing costs and a broad recovery, it will "inevitably end up in an EU bailout." The current situation is as bad as when the country was blown out of the ERM in 1992 as "the Italian macro situation has not improved...rather the contrary; with 160 large corporates in Italy now in special crisis administration." If the ECB doesn’t act, one analyst warns (pleads) it could see all the gains of the past nine months vanish in two weeks. Mediobanca said the trigger for a blow-up in Italy could be a bail-out crisis for Slovenia or an ugly turn of events in Argentina, which has close links to Italian business. "Argentina in particular worries us, as a new default seems likely."

While John Kerry has only been in his role a few months and Russia seemingly happy to hold Edward Snowden for a while longer, it seems he has the hang of international diplomacy...

• *KERRY SAYS U.S. NOT LOOKING FOR 'CONFRONTATION' ON SNOWDEN CASE
• *KERRY SAYS RUSSIA SHOULD RESPECT RULE OF LAW ON SNOWDEN

So there we have it, add another 'threat' to the already brewing war-by-proxy in Syria; in one corner we have Vietnam war "veteran" (always ready to act 'swiftly'), in the other a Former KGB superspy who wrestles bears. Guess who wins.

The May Durable Goods data released moments ago (which like in previous instances will almost certainly be revised downward subsequently but is enough to trigger kneejerk momentum response algos) was better across the board, printing at a 3.6% increase in May on expectations of a 3.0% rise, down from an upward revised 3.6% in April. Virtually all of the pick up in new orders was due to a surge in Boeing orders, which recorded 232 new plane orders, of which however half were orders (funded by still cheap credit) for planes still in the design phase. Stripping away volatile orders for transports (of which non-defense aircraft and parts exploded by 51% in May), the remaining durable goods orders posted a far more modest 0.7% increase, which too beat expectations of an unchanged print. Will today be the day when good economic news are finally bad market news? Stay tuned.

What magic Chinese rabbit has been pulled out of the hat now?

Nothing says economic recovery like one of the most profitable and prestigious law firms in the nation announcing mass layoffs for the first time in 82 years.  Yep, four years after the so-called “recovery” began, things are so good that Weil, Gotshal & Manges has decided to cut 7% of its associates and slash annual compensation for 10% of its partners by hundreds of thousands of dollars. Good luck with that taper Bernank.

This is a game changer that's puts the power of observational surveillance in the hands of the common man and real time media broadcasting in the hands of the many. Few understand the consequences of what Google is proposing...

If Obama thought dealing with Putin was next to impossible when Snowden was merely hiding in the no man's land of the Sheremetyevo transit zone (see "U.S. steps up pressure on Russia as Snowden stays free") he is about to really lose his grip now that the former KGB spy appears set to "debrief" the very much current NSA whistleblower, and in the process learn as much as possible about US secret spy operations on whose receiving end, for countless years, has been none other than Putin's Russia. As Interfax reports: "Russian law enforcement authorities may detain former CIA employee Edward Snowden to establish the circumstances of his arrival in Russia, including passport details." In other words, Russia is now willing and eager to "force" Snowden to make a faux pas just so it has every reason to end up with the 30 year old in a dark, sound proof room. And just like that Obama's headaches are set to become much, much worse.

• Here come the rolling blackouts: Obama takes on power plant emissions as part of climate plan (Reuters)
• Walking Back Bernanke Wished on Too Much Information (BBG)
• As previewed last week: Bridgewater "All Weather" is Mostly Cloudy, down 8% YTD (Reuters)
• U.S. Said to Explore Possible China Role in Snowden Leaks (BBG)
• Coeure Says No Doubt ECB Loose Monetary Policy Exit Distant (Bloomberg)... so a "recovery", but not at all
• U.S. steps up pressure on Russia as Snowden stays free (Reuters)
• Texas' Next Big Oil Rush: New Pipelines Ferrying Landlocked Crude Expected to Boost Gulf Coast Refiners (WSJ)
• Singapore Offsets Bankers as Vacancies Fall (BBG)
• Asian Stocks Fall as China Sinks Deeper Into Bear Market (BBG), European Stocks Rally With Bonds as Metals Advance (BBG)
• Qatar emir hands power to son, no word on prime minister (Reuters)

It was shaping up to be another bloodbathed session, with the futures down 10 points around the time Shanghai started crashing for the second night in a row, and threatening to take out key SPX support levels, when the previously noted rumor of an imminent PBOC liquidity injection appeared ex machina and sent the Shanghai composite soaring by 5% to barely unchanged, but more importantly for the all important US wealth effect, the Emini moved nearly 20 points higher from the overnight lows triggering momentum ignition algos that had no idea why they are buying only knowing others are buying. The rumor was promptly squashed when the PBOC did indeed take the mic, but contrary to expectations, announced that liquidity was quite "ample" and no new measures were forthcoming. However, by then the upward momentum was all that mattered and the fact that the underlying catalyst was a lie, was promptly forgotten. End result: futures now at the highs for absolutely no reason.

Hardly the white flag of surrender before the feral hogs the markets were expecting, especially since the PBOC just blamed liquidity conditions on "seasonal factors."

• PBOC OFFICIAL SAYS FINANCIAL MARKET STABLE THIS YEAR
• PBOC OFFICIAL SAYS MONEY MARKET FLUCTUATIONS TEMPORARY
• PBOC OFFICIAL SAYS SEASONAL FACTORS TO GRADUALLY DISAPPEAR
• PBOC OFFICIAL SAYS TO CLOSELY WATCH LIQUIDITY CONDITIONS
• PBOC OFFICIAL SAYS TO STEP UP COMMUNICATION TO GUIDE RATES

And the most important:

• PBOC OFFICIAL SAYS LIQUIDITY AMPLE

Oh well: back to the rumor drawing board. But for today, the goal was achieved - both Chinese stocks and European and US futures ramped on the usual bullshit, with China erasing a 5.8% drop closing just 0.2% lower and S&P futures now at the session highs on absolutely nothing.