Archive - Jul 10, 2013

It was only a matter of time before Wall Street, overoptimistically hockeysticking everything as always, slammed its wrong Q2 GDP forecasts following the earlier miss in Wholesale Inventories, which printed at -0.5% on expectations of a +0.3% increase, and down from a downward revised -0.1% (was +0.2%). That time has arrived, with Barclays the first to slash its already stall speed 1.0% Q2 GDP forecast by a whopping 40% to 0.4%. Looking forward to the imminent revisions from Goldman and, of course, Joe "Almost as good as Groundhog Phil, almost" Lavorgna.

Immediately in the aftermath of the Snowden revelations, various political action committees and their ideologically affiliated polling services took to convincing the general public that according to "popular opinion", a "majority" of Americans found Snowden to be a [traitor|hero]. A month later, with the the dust having settled somewhat, the US public has had some more time to consider the implications of living in the United Stasi States of America. And sure enough, another poll has just been released, this time by Quinnipiac. Its findings are as follows: a majority of U.S. registered voters consider Edward Snowden a whistle-blower, not a traitor, and a plurality says government anti-terrorism efforts have gone too far in restricting civil liberties, a poll released today shows. Fifty-five percent said Snowden was a whistle-blower in leaking details about top-secret U.S. programs that collect telephone and Internet data, in the survey from Hamden, Connecticut-based Quinnipiac University. Thirty-four percent said he’s a traitor.

As the EU agrees to fund another bailout deal to help Greece rise from the ashes, providing them with another $8.7 billion in financial aid, the question that begs an answer is: will this have any effect on the austerity that is being imposed on the country. Throwing good money after bad?

Another day of fraught wonderment ahead of us. What does it all mean? China economic data increasingly suggests there is a serious problem, (that’s still a few points below crisis – but recent experience suggests the politics of mobs can turn ugly with surprising speed!). On the other hand, yesterday’s US auctions went swimmingly well – so we can all relax about the taper? Er.. no. And while Spain gets a cheeky 15-yr bond issue completed (driven on the back of a large single order we strongly suspect), the Italians then get downgraded because of the weakening economy, deteriorating competitiveness and 1.9% negative growth outlook... “You can’t make this stuff up,”

"If central banks keep tacking and trimming as they edge away from accommodation, it may come to pass that none of their statements will carry much credibility. They could then lose control of long rates or, at best, stability in long rates might call for ever greater market intervention on their part. The end-result would be to render monetary measures largely useless as instruments of policy because central banks, with their controls jammed open, could never be sure of effecting any intended plan. Mr Bernanke and his co-thinkers may soon discover that, in taking a different line in coping with the current depression from that followed in the 1930s, they have fallen unsuspectingly into a trap from which escape will be painful."

The unaffordability-train rolls on in the US housing market. While it may destroy the housing-recovery-will-save-us meme (even as homebuilder stocks are the worst performing since the FOMC and many are sliding to 52-week lows), the facts are that a rising mortgage rate (now over 4.50% for the first time in 2 years) does reduce dramatically what the average household can afford to pay (given that people - unlike banks and governments - have limited incomes and balance sheets). Mortgage applications fell for the 8th week of the last 9 at the fastest year-over-year pace in 3 years and slumped to 2 year lows. This bodes extremely ill for home sales and the 'recovery' upon which it has already become dependent (as we noted here).

Gold is little changed near a one-week high, and is marginally higher in dollars as the dollar has retreated from a three-year high, and higher in most currencies. The gold market continues to digest the ramifications of gold borrowing costs surging to the highest since the post-Lehman Brothers scramble for gold bullion. Gold Forward Offered Rates (GOFO) or the cost to borrow gold remains negative and overnight the 1 month GOFO has gone from -0.106% to -0.11167%. Other durations eased marginally. The lack of liquidity in the the interbank London Good Delivery gold market (400 ounce gold bars) has pushed gold forward rates, known as “gofo”, into negative territory, meaning that gold for future delivery is trading at a discount to physical market prices – a rare situation that has occurred only after the Lehman Brothers collapse and near the bottom of the gold market in 1999. The last time forwards were negative was in November 2008, when a scramble for physical gold led a sharp price rally of 46% from $682/oz to over $1,000/oz between October 2008 and February 2009.

Just as California is attempting to round up the financing for its miracle-on-rails high-speed train, so Spain is finding out the reality of the over-promised and under-funded phoenix-like expectations of their own high-speed rail project. From exaggerated passenger traffic expectations 40% higher than the current slower route's traffic to the massive billion-euro debts that have already been accumulated, nothing says epic fail like the City of Villena's 4,500 square meter gleaming new train station - the only access to this building-in-the-middle-of-nowhere is a dirt track used by local farmers. The reason - simple - while the central government financed  the building, the local Valencia regional government was responsible for funding the connection to the local city and freeways - it ran out of money, leaving the station high-and-dry. As Reuters adds, the disconnect says a lot about both Spain and its current finances, about a love affair with grand projects to showcase its modernity and a diminishing ability to pay for them.

With a ridiculous monetarist experiment that is doomed to fail, currently raging in Japan, where girl bands plaud the masculinity of deranged FX and stock traders, it is easy to forget that some two years ago the country suffered the worst nuclear disaster in history. And what is worse, the delayed consequences, all of them tragic, will stay with Japan for the years and decades to come. We got a very sad reminder of the true Japanese tragedy (because deflation is only "horrible" if you live outside your means) earlier when we read that Masao Yoshida, the plant manager who led the fight to bring Japan’s Fukushima atomic station under control during the 2011 nuclear disaster, has died from esophageal cancer. He was 58. He died on July 9 at a hospital in Tokyo, according to a statement from Tokyo Electric Power Co., the operator of the Fukushima Dai-Ichi nuclear plant.

• MSM discovers that soaring dollar hurts corporate profits: P&G to Apple Hurt by Strong Dollar Keep S&P 500 Profits in Check (BBG)
• China Posts Surprise Drop in Exports (WSJ) - lol: "surprise"
• Plan Reins In Biggest Banks (WSJ)
• European Commission Seeks Authority to Wind Down Banks (WSJ) - and Germany just says 9
• U.S. Banks Seen Freezing Payouts as Harsher Leverage Rules Loom (BBG)
• Brussels sets up clash with Berlin over banks (FT)
• EU to Toughen Creditor-Loss Rules at Failing Banks From August (BBG) - or September, or October, but definitely November... 2023
• China's crude, iron ore imports falter as demand cools (Reuters)
• Obama pushes economic case for immigration as House eyes next steps (Reuters)

If the worst Chinese trade data in years (and by that we mean unmanipulated, because what was released last night is merely China offsetting blatantly BS Q1 trade data), and yesterday's S&P downgrade of Italy (which has sent BTPs lower although the EURUSD drop was offset by buying pressure resulting from Stolper closing out his EURUSD long) doesn't send the Stalingrad & Poorski 451 to new all time highs, then all the Chairman's efforts to make a complete farce of the "market" will have been for naught. But while the Fed keeps pushing mom and pop into stocks, he may want to tell his friends at the CME to hike WTI margins, because this morning's latest surge in crude to over $105 will really start hurting refiner margins, and due to the overall energy complex roaring higher, gas prices too, which incidentally just crossed $3.50 in the wrong direction this morning.

Nobody could see this coming, nobody. Then again, by now Goldman's irreplaceable FX strategist, perhaps the most valuable one ever (remember in finance batting 0.000 is the same as batting 1.000), most certainly has a form "mea culpa" letter.

Talk is cheap and action speaks volumes. We may be horribly wrong but we are taking action based on our knowledge. Its time people took responsibility for themselves and stopped bitching.

Big Banks Move Into Uranium Mining, Petroleum Products, Aluminum, Ownership and Operation Of Airports, Toll Roads, and Ports, and Electricity