Archive - Jun 2013

The only thing more ominous for the world than a Hindenburg Omen sighting is a Bilderberg Group meeting. The concentration of politicians and business leaders has meant the organisation, founded at the Bilderberg Hotel near Arnhem in 1954, has faced accusations of secrecy. Meetings take place behind closed doors, with a ban on journalists. We suspect the agenda (how the US and Europe can promote growth, the way 'big data' is changing 'almost everything', the challenges facing the continent of Africa, and the threat of cyber warfare) has been somewhat re-arranged as market volatility picks up and the status quo begins to quake once again.  The annual gathering of the royalty, statesmen, and business leaders, conspiratorially believed to run the world (snubbing their Illuminati peers and Freemason fellows), will take place this week at the Grove Hotel in London, England. The Telegraph provides the full list of attendees below - for those autogrpah seekers - including Britain's George Osborne, US' Henry Kissinger, Peter Sutherland (the chairman of Goldman Sachs), the Fed's Kevin Warsh, Jeff Bezos?, Peter Thiel, Italy's Mario Monti, and Spain's de Guindos.

We can only imagine that the unemployment data must be so good that the French need a little more time to get positioned for the market's exuberance. It seems the government's statistical agency has proclaimed that:

• *INSEE WON'T BE ABLE TO PROVIDE FULL 1Q FRENCH UNEMPLOYMENT DATA
• *INSEE WAS SCHEDULED TO PUBLISH 1Q UNEMPLOYMENT DATA ON JUNE 6

Of course, we are sure this has nothing to do with the nation being near depression (as we discussed here and here most recently) and jobseekers at all-time record highs. It seems 'when the news is bad, "lie"' is trumped by 'when the news is dreadful, "don't report it"'.

When will the US equity markets follow suit?

If the further away from USDJPY 105-110, the latest BOJ "soft target" on the pair, we go, the weaker the case for Abenomics, than we wouldn't be surprised if Japan's marionette PM, whose only bidding was to reflate global stock markets, price stability, quality of Japanese life and soaring import costs, be damned, is about to see an escalation in bathroom runs, leading to yet another disgraced exit, hopefully his final this time, from Japanese politics. And with that the great Japanese reflation experiment will end. Nikkei futures continue to fade - getting closer and closer to the 20% correction that marks the start of the Japanese bear market. In the US, everyone's favorite ETF - homebuilders - are now down 7.4% from Friday morning.

These rats are in charge of the con...

It may come as a surprise to some that the total level of commercial bank loans outstanding as of the most recent week, May 22, was "only" $7.303 trillion. We say only because this number is $20 billion less than the total commercial loans outstanding as of the weeks following the Lehman failure, just before the most epic deleveraging episode in recent US history began. It is also just $600 billion higher than the cyclical lows of $6.7 trillion (net of the February 2010 readjustment of the commercial loan terminology).  So does this mean that deposits in the US financial system have been unchanged in the past nearly 5 years? Not at all. As the chart below shows, while commercial loans have flatlined, deposits, which previously used to track loans on a dollar for dollar basis, took off, and are now at $9.4 trillion (as per the latest H.8), or $2.2 trillion more than the $7.2 trillion when commercial banks loan hits a record in October 2008, just after Lehman filed. What's more notable, is that as of the latest week, the excess of deposits over loans just hit an all time record of $2.079 trillion

While the new normal knee-jerk reaction to the dismal ISM print was the bad-is-good surge in buying, it seems reality is setting in...

UPDATE: BIST-100 Closes -10.47% - Biggest drop since March 2003

Until mid-last week, the Turkish equity market was up 90% from the start of 2012 and up 19.5% in 2013. Of course, why not. Global easy money and a nation in the middle of economic and geopolitical hotspots - buy it with both hands and feet. However, it appears reality is starting to sink in. Last week's (and ongoing) social unrest is beginning to take the shine off the hot-money flows. The broad Turkish stock market is now down 17% from its highs last week (very reminiscent of Japan) having given up in 3 days the gains from the first five months of the year. Turkish bond yields also spiked (moar hot-money outflows from 'reaching for yield') by their most on record (71bps) to 6.78%.

So much for the Chicago PMI 8 Sigma renaissance. Moments ago the Manufacturing ISM came out and confirmed that all those "other" diffusion indices were correct, except for the "data" out of Chicago (yes, shocking). Printing at a contractionary 49.0, this was a drop from 50.7, well below expectations of 51.0 (and far below the cartoonish Joe Lavorgna's revised 53.0 forecast). More importantly, this was the worst ISM headline print since June 2009, the first sub-50 print since November 2012, while the New Orders of 48.8, was the worst since July 2012. Both Production and Backlogs tumbled by -4.9 and -5.0 to 48.6, and 48.0 respectively. In brief, of the 11 series tracked by the ISM, only 3 posted a reading over 50 in May. This compares to just 2 out of 11 that were below 50 in April. Oh well, so much for this recovery. But the good news for the market is that today is really bad news is really good news day, and stocks have soared as according to the vacuum tubes, the result means no taper. The farce must go on.

While "risk-on, risk-off" has been an oft-repeated mantra in this period of extreme monetary policy machinations, it would appear the most relevant factor in the last six months is in fact "Abenomics-on" as a concerted plan to devalue the JPY has provided ammunition for carry traders to rampage through every dismal risk asset in the world. After collapsing through the Maginot Line of 100 on May 9th, JPY has rallied back and spent the last two weeks fighting over 101. It appears, given today's shift back under 100 that, for now, Abe is going to need a bigger boat. It seems, as with the Fed's balance sheets, that it's not about the 'stock' of USDJPY (level) but the 'flow' (depreciation rate) if risk assets are to continue their march ever higher in the face of a not-so-bullish reality. As one would expect, NKY futures and US (and European) equities are fading fast along with this 'driver'.

By my count we are now in our fourth “Recovery Summer.” The recession was officially (and mistakenly) declared over in June 09. Yet, no data series in economics not influenced drastically by liquidity and a zero interest rate policy (e.g., stock prices and home prices) supports the claim. Recovery advocates point to the stock market as a barometer of how well the economy is doing. A key takeaway is that the stock market misled people during the 1930s and may be doing the same thing today. Those who want to argue against this position will declare the 1930s an unfair comparison because it was a Great Depression. Just what makes them think what we are in today is not the same thing, although not yet as far advanced. Given the trillions of dollars wasted to hide the true condition of the economy, that is not an unreasonable possibility. This liquidity hides the true nature of the economy (also falsely drives up financial asset prices) and creates even bigger distortions in the real economy.

Technically we’re all poorer than we were before 2008 happened. Most of us are making less money. And we’re spending more just trying to get by thanks to higher food, energy, and healthcare prices. Heck, housing is now even soaring again, pricing most beginning homebuyers out of the market.

While we are told day-after-day just how 'fixed' Europe is; just how 'past the crisis' they are; and just how close to banking union; the reality is the nations of Europe are as disparate as they have ever been. We discussed the dismal unemployment picture last week, but one glance at the chart below will highlight the growing divergence between the haves and have-nots in Europe. As Bloomberg's Niraj Shah notes, unemployment rates are diverging at record levels in the euro area.

In almost every asset class, volatility has made a phoenix-like return in the last few days/weeks and while equity markets tumbled Friday into month-end, the bigger context is still up, up, and away (and down and down for bonds). From disinflationary signals to emerging market outflows and from fixed income market developments to margin, leverage, and valuations, here is the 'you are here' map for the month ahead.

From Rosie: "The next major theme is stagflation — this will be the legacy of the Bernanke regime. You cannot keep real short-term rates negative for this long in the face of even modestly positive real economic growth without generating financial excesses today and inflationary pressures in the future. Imagine dusting off the Phillips Curve and getting away with it — it's as if the Fed has changed religions as it now believes there is some trade-off between inflation and unemployment The last time we had negative real policy rates for this long with a central bank wedded to the Phillips Curve was under the Burns-led Fed of the early 1970s. As I have said recently — I am undergoing my own epiphany. I am renowned for being very early — to a fault — in my calls and no doubt am early yet again."