Archive - Jun 6, 2013

Because sometimes you just have to laugh...

As the world waits breathless for some Goldilocks print in tomorrow's non-farm payroll data, Gallup's most recent survey of employment trends does not paint a pretty picture for the real economy. Though, by the 'adjustment bureau' and their Arima-X goal-seeking, nothing is ever clear, not only is the payroll-to-population (the number of people working) worse than a year ago but the unemployment rate is also rising with under-employment - at 18.0% - near 15 month highs. If the NFP print plays out in line with this, the estimate of 165k will be woefully over-optimistic, leaving the question of whether bad-is-good, or have we crossed the Rubicon of belief in moar is better.

Yes, Government Spooks May Be Listening

Some are surprised that inflation has failed to take off despite massive amounts of quantitative easing. The explanation, ECRI explains, is simple: recession kills inflation. For all the talk of the wealth effect, demand is falling and deflation is closer than at any time since 2009. The 'r' word is seldom heard on the lips of the mainstream media - "how absurd" - but as SocGen's Albert Edwards notes, if anyone is waiting for the ISM to tell them that a recession has started in the US, they are looking at the wrong data. Much more importantly, Edwards explains, we may well be in for a double dose of bad news - both falling revenues and falling margins. History suggests this as good a leading indicator as any other for whether the US economy will endogenously fall back into recession. Unfortunately at the height of a recovery most commentators forget profit margins mean-revert as they become intoxicated by the equity market's prior stellar performance and tend to continue to price the market off analysts' forward earnings - which inevitably always forecast further healthy gains ahead.

Hawkish Dallas Fed head Richard Fisher was relatively outspoken following a speech this morning in Toronto as some insightful truthiness leaked out. As Money News reports, Fisher exclaimed, "we cannot live in fear that gee whiz the market is going to be unhappy that we are not giving them more monetary cocaine," adding that, "only time will reveal the efficacy of current policy and whether the risks that I and more experienced observers like Paul Volcker fret over are as substantial as we surmise, or whether we have made much ado about nothing."

It's a big club, and you ain't in it...--George Carlin

Two weeks ago, with its current account getting crushed by relentless gold imports, India's finance minister Chidambaram literally begged the people to stop buying gold. Judging by the popular response, the ongoing physical shortage, and last night's increase in Indian gold import duties from 6% to 8%, appealing to people's feeling when it comes to the choice of fiat vs physical, has failed miserably. So the FinMin Chidambaram has decided to escalate.  Per Reuters: "The Reserve Bank of India has advised banks against selling gold coins to retail customers, Finance Minister P. Chidambaram said on Thursday, a day after he raised gold import duty to try to ease pressure on India's bloated current account deficit." Well, if there ever was one sure way to send demand for any product through the roof (guns, ammo, etc), it is for the government to prohibit its outright sale. What follows next, almost without fail, is a panicked, chaotic buying scramble.

Not exactly a ringing endorsement of his hodgepodge of old ideas and new contradictions.

America may be a service economy but for the sake of tomorrow's NFP let's pretend it isn't. Because if the employment component of the Non-manufacturing (i.e., Services) ISM, which at least in the pre-centrally planned times correlated with the NFP number with an R² of about 0.9, is indicative of what to expect, one can kiss any hopes of a recovery goodbye. Which, of course, is great news! It means the Fed will never pull out and never realize that it is the Fed's central planning and market manipulation that is responsible for the every deeper global economic depression which benefits only stock holders (and traders).

Presented with no comment...

If we take out this trendline, stocks could easily go to 1,450. And if things get really ugly we could even see a Crash (though that would likely come later in the Autumn based on historic patterns).

The problem is central banks have created a vast pool of credit-money that is far larger than the pool of sound investment opportunities.  Why are asset bubbles constantly popping up around the globe? The answer is actually quite simple. Asset bubbles are now so ubiquitous that we've habituated to extraordinary excesses as the New Normal; the stock market of the world's third largest economy (Japan) can rise by 60% in a matter of months and this is met with enthusiasm rather than horror: oh goody, another bubblicious rise to catch on the way up and  then dump before it pops. Have you seen the futures for 'roo bellies and bat guano? To the moon, Baby! The key feature of the New Normal bubbles is that they are finance-driven: the secular market demand for housing (new homes and rental housing) in post-bubble markets such as Phoenix has not skyrocketed; the huge leaps in housing valuations are driven by finance, i.e. huge pools of cheap credit seeking a yield somewhere, anywhere:

From central-planning to universal-panning...

Just a month ago we broke above the magical 1,600 level on the S&P 500... today we broke back below, with the index now down over 5% from its 5/22 highs. From a technical perspective, the Nikkei 225 is below its 100DMA, and the Dow and S&P 500 just broke below the 50DMA. VIX has risen, now back above 18% (highest in over 3 months). No Hindenburg Omen signal (yet). What we worry about is that everyone is focused on tomorrow's NFP print as some panacea for "Taper." This is incorrect. The "Taper" jawboning from the Fed is because they are increasingly fearful of the bubbles they have created (just look at the sudden influx of frothiness discussions) and need to 'try' and talk us off the exuberant ledge. Whether the NFP is strong or weak is irrelevant - we all know the 'real' economy is weak - it doesn't matter to the Fed who can't support such disconnected markets any longer since they know that the higher it goes the worse it will end.

It's USDJPY waterfall time and Mrs Watanabe has just left the building. She is now getting familiar with the far less known cousin of the "wealth effect" - the "poverty effect." In other news, someone big just got the proverbial tap on the shoulder.