Archive - Jun 2013

Over a week into "Occupy Taksim", the Turkish situation is nowhere near resolution. In fact, judging by the capital markets response to news that hundreds of police stormed Taksim Square this morning using tear gas to disperse protesters, where the lira declined overnight to the weakest level since December 2011, bond yields dropped 29 bps, Turkish CDS rose wider than Russia, and where even the central bank has warned it may start engaging in tightening operations, things are going to get much worse. Finally, a big demonstration is due in a few hours: will Taksim Square June 2013 be the "Waddel and Reed/May 2010" Syntagma Square flash crash equivalent? Find out shortly.

• Citigroup Facing $7 Billion Currency Hit on Dollar, Peabody Says (BBG)
• World has 10 years of shale oil, reports US (FT)
• ECB prepares to defend monetary policy in German court (FT)
• European Stocks Sink to Seven-Week Low as Treasuries Fall (BBG)
• Fitch warns on risks from shadow banking in China (Reuters)
• Obama administration to drop limits on morning-after pill (Reuters)
• ACLU asks spy court to release secret rulings in response to leaks (MSNBC)
• SEC Nets Win in 'Naked Short' Case (WSJ)
• SoftBank Raises Offer for Sprint to $21.6 Billion (WSJ)
• Chinese rocket launch marks giant leap towards space station (FT)

Overnight, following the disappointing BOJ announcement which contained none of the Goldman-expected "buy thesis" elements in it, things started going rapidly out of control, and culminated with the USDJPY plunging from 99 to under 96.50 as of minutes ago, which was the equivalent of a 2.3% jump in the Yen, the currency's biggest surge in over three years. Adding insult to injury was finance ministry official Eisuke Sakakibara who said that further weakening of yen "not likely" at the moment, that the currency will hover around 100 (or surge as the case may be) and that 2% inflation is "a dream." Bottom line, NKY225 futures have had one of their trademark 700 points swing days, and are back knocking on the 12-handle door. Once again, the muppets have been slain. Golf clap Goldman.

When the Big Brothers fight it out! Did you know that your new Samsung GS4 has 14 new sensors to send your personal info up into the cloud, everything from real time health info to location and travel history.

UPDATE: Nikkei futures now -500 from US day-session highs

In what must be quite a surprise to Goldman (as we discussed here), the BoJ has decided not to give in to the market's demands:

*BOJ REFRAINS FROM EXPANDING J-REIT, ETF PURCHASES (expected lifting of cap)
*BOJ LEAVES FUNDING TERMS UNCHANGED AFTER JGB YIELD VOLATILITY (expected extension from 1Y to 2Y)

The market's angry reaction... NKY -400 from US day-session highs, USDJPY gapped down 80 pips to 98.00, JGB Futs closed, JGBs unch. Full statement to follow:

"A brave new Huxley-world of the unlimited debt,” a world where “money is no longer earned but printed”

It seems the question on many people's minds, as scandal after scandal crashes on the shores of Obama's White House is best summed up by The Telegraph's Damian Thompson. Yet another non-US paper asks, will Obama last the duration of his second term in a surveillance context where what has been revealed is said to be worse than Watergate.

All the news recently about the U.S. government’s telephone and online surveillance programs got ConvergEx's Nick Colas thinking about a rich academic field: the psychology of observation.  How do observers differ from actual actors in their explanations of events they either witness or in which they actually participate?  Scores of academic studies point to a key difference.  Actors tend to attribute their decisions to situation-specific inputs.  Those observing these actions, by contrast, tend to ascribe their ultimate cause as tied to the personality of the actors involved.  Same destination, but radically different interpretations of the journey.  Even the process of being watched can change human behavior.  Bottom line – observers and actors are rarely on the same planet, let alone the same page, when it comes to explaining a given event.  Keep that in mind as you try to understand Fed policy, or a company’s management, or even your own family.

The short but profitable tale of how 483,000 private individual have "top secret" access to the nation's most non-public information begins in 2001. "After 9/11, intelligence budgets were increased, new people needed to be hired, it was a lot easier to go to the private sector and get people off the shelf," and sure enough firms like Booz Allen Hamilton - still two-thirds owned by the deeply-tied-to-international-governments investment firm The Carlyle Group - took full advantage of Congress' desire to shrink federal agencies and their budgets by enabling outside consultants (already primed with their $4,000 cost 'security clearances') to fulfill the needs of an ever-more-encroaching-on-privacy administration.

The list of egregious offenses by current governments reads like a modern day version of the Declaration of Independence, in which Thomas Jefferson so eloquently lists the British King's "long train of abuses", including:

• He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.
• He has obstructed the Administration of Justice
• He is at this time transporting large Armies of foreign Mercenaries to compleat the works of death, desolation and tyranny
• For taking away our Charters, abolishing our most valuable Laws, and altering fundamentally the Forms of our Governments

Sound familiar? History shows that desperate, insolvent nations almost INVARIABLY resort to vain attempts at despotic control - capital controls, wage and price controls, border controls, people controls. And the worse things get, the more destructive the tactics become.

As Mike Tyson once ominously noted, "everyone has a plan until they get punched in the face," and it seems the rampage of equity bulls have some plan that many more prosaic fundamental analysis-based investors are unaware of (as we showed here). The 'punch' in the face will come; but in the meantime the following chart may be just the 'jab' that softens them up. As ThomsonReuters notes, of the 116 second-quarter earnings pre-announcements given by S&P 500 companies, 93 of them have been negative, while only 14 have been positive. The resulting 6.6 negative to positive guidance ratio is the most negative since the first quarter of 2001. Nothing to see here, move along.

• S&P Revises U.S. Credit Outlook To "Stable" From Negative

• Fed's Bullard Details How QE Can Be Cut

• Fed Retreat From Bond Buying Expected By Fourth Quarter - Poll

• U.S., Japan Leading Recovery In Major Economies - OECD

The New Deal social insurance philosophers thus struck a Faustian bargain... To get government funded pensions and unemployment benefits for the most needy, they eschewed a means test and, instead, agreed to generous wage replacement on a universal basis. To fund the massive cost of these universal benefits they agreed to a regressive payroll tax by disguising it as an insurance premium. Yet the long run results could not have been more perverse. The payroll tax has become an anti-jobs monster, but under the banner of a universal entitlement organized labor tenaciously defends what should be its nemesis. The puzzling thing is that 75 years later - with all the terrible facts fully known - the doctrinaire conviction abides on the Left that social insurance is the New Deal’s crowning achievement. In fact, it is its costliest mistake.

From the inside of the Federal Reserve's gold vault (where we are told one quarter of the world's bullion resides) to NYC's diamond district and the gold-dealers on the streets, this NatGeo documentary is a fascinating walk through the reality of trust, money, and gold. As the narrator notes, "the Fed's discretion is so trusted that few depositors have ever asked to see if their gold is still here," except of course Germany now that is, adding (from the exact opposite perspective to the man that runs the building) that, "for thousands of years people used gold as money... it's the perfect recyclable money...." The must-watch video then progresses to the reality of our financial world where he explains, the trillions in money that is transacted every day "used to be backed gold, but is now supported by the promise of our government... The fact that it all works based on trust alone is simply taken for granted," leaving the ominous question of "who is in charge" of that 'trust'? Cue Ben Bernanke - who answers the question of what the world would look like without a Fed... bank runs, stock market crashes, and financial chaos.

When you just have to laugh...