Archive - Jul 29, 2013

The following chart from Credit Suisse fully explains why the US housing "recovery" has just ground to a halt: in a few short weeks, US housing affordability (a topic we first covered a month ago) has collapsed as a result of the monthly payment on the median home sold soaring by nearly 40% from under $800 to just shy of $1100, a level not seen since 2008. Now if only US personal incomes would keep pace, instead of doing this...

Don't like how high debt-to-GDP figures are? Revise 'em. Unhappy at the post-'recovery' growth rates? Revise 'em. Disappointed at the pace of economic improvement in the last decade or two compared to the rest of the world? Revise 'em. This week "we are essentially rewriting economic history" as the BEA is set to revise GDP data from as far back as 1929. The 'adjustments' to account for intangibles (that best known of micro- accounting fudge factors) and as we noted previously in great detail, will increase GDP by around $500 billion. Of course, these changes are defended aggressively (just as the hedonic adjustments to inflation calculations 'make perfect sense') as GDP will now reflect spending on research, development, and copyrights as investment - and reflect pension deficits for the first time (think of all that potential future GDP from massive pension deficits now). With Q2 GDP growth estimates set for a dismal 1.1%, expectations are for the short-term economic data to be revised upwards (and with any luck the great recession never happened at all).

The July edition of Insight aptly titled ‘As The Crisis Deepens, Gold Flows East’ builds on our recent commentary and offers another viewpoint on why there is a marked flow of gold from west to east.

The next three editions of Market Update will quote extensively from ‘As The Crisis Deepens, Gold Flows East’ as we delve deeper into the story and its implications for our financial well being.

We have extensively covered the evolution of Q2 earnings in the US where so far nearly half or 240 of firms have reported (and 136 on deck this week): from the revenue recession (2nd consecutive decline), to the overreliance on financial firms as the sole driver of EPS upside, to the fact that the only reason banks are beating is to FAS115, the unaccounting of AFS swings and the suspension of MTM. In other words, no top-line growth and bottom-line upside solely due to financial balance sheet gimmicks. But what about, Europe where accounting magic is not nearly as advanced a science as it is in the US?

After a slow start in the week, there is a substantial pick up with announcements from the FOMC, ECB and BOE (as well as monetary policy updates from the RBI, RBA, Israel, and Czech Republic) with the possibility, if not probability, of a Fed update on tapering expectations. On Wednesday we get the much expected wholesale GDP revision which will boost "growth data" all the way back to 1929 and is expected to push current GDP as much as 3% higher, and on Friday is the "most important NFP payroll number" (at least since the last one, and before the next one), where the consensus expects a +183K print, and 7.5% unemployment. All this while earnings season comes to a close.

The Institute of International Finance (IIF) has released data that shows that the credit crunch in China is hitting harder than was thought at first and is secondly at the worst level since the global financial crisis landed on everyone’s plate. 

• More Doctors Steer Clear of Medicare (WSJ)
• Syrian Looters in Bulldozers Seek Treasure Amid Chaos (BBG)
• Siemens CEO Peter Löscher Is Set to Leave His Post After Series of Earnings Misses (WSJ)
• Silver Vault for 200 Tons Starts in Singapore as Wealthy Buy (BBG)
• Omincom and Publicis merger shows that advertising is now firmly in the business of Big Data: collecting and selling the personal information of millions of consumers (NYT)
• Apple supplier accused of labour violations (FT)
• 'BarCap was the Wild Wild West – that’s what we called it’ (Telegraph)
• P&G chief seizes opportunity in era of three-day stubble (FT)
• Federal Reserve 'Doves' Beat 'Hawks' in Economic Prognosticating (WSJ) - LOL: Fed "hawks"

Hopes that Kuroda would say something substantial, material and beneficial to the "three arrow" wealth effect (about Japan's sales tax) last night were promptly dashed when the BOJ head came, spoke, and went, with the USDJPY sliding to a new monthly low, which in turn saw the Nikkei tumble another nearly 500 points. China didn't help either, where the Shanghai Composite also closed below 2000 wiping out a few weeks of gains on artificial hopes that the PBOC would step in with a bailout package, as attention turned to the reported announcement that an update of local government debt could double the size of China's non-performing loans, and what's worse, that the PBOC was ok with that. Asian negativity was offset by the European open, where fundamentals are irrelevant (especially on the one year anniversary of Draghi FX Advisors LLC "whatever it takes to buy the EURUSD" speech) and renewed M&A sentiment buoyed algos to generate enough buying momentum to send more momentum algos buying and so on. As for the US, futures are indicating weakness for the third day in a row but hardly anyone is fooled following two consecutive days of green closes on melt ups "from the lows": expect another rerun of the now traditional Friday ramp, where a 150 DJIA loss was wiped out during the day for a pre-programmed just green closing print.