Archive - Jul 30, 2013

After a three-month surge to 5 year highs, beating expectations month-after-month, it seems surging mortgage rate and surging gas prices trump (at least for now) the all-time record high in stock prices. This is the first drop in 5 months, the first miss in 4 months but what is most worrisome for the apparent discounting mechanisms of the 'efficient' markets is the plunge in future expectations (after a 3 month surge of hope) even as the present situation continues to rise in survey respondent's minds. This is particularly worrisome in the employment outlook as those that see fewer jobs in the future rose and those that see more jobs in the future fell for the first time in 4 months.

Guess which city this chart represents.

Following OAO Uralkali's decision to break up a 'marketing venture' that controlled around 43% of global potash exports, the world's largest producer is breaking the cartel that many US fertilizer companies have enjoyed. This move signals prices will weaken as the Russian company tries to grab market share shifting sales to its own unit. As Goldman notes, such behavior by Belaruskali in a structurally oversupplied potash industry should push for stricter competition for end customers and result in a significant swift decline in pricing to a level of marginal cost production. This slashing of margins has crushed the fertilizer stocks with POT, MOS, and AGU all down significantly in the pre-market."Uralkali’s announcement completely turns the global potash market upside down," noted one analyst. "If previously global potash producers were acting like an oligopoly, working with the rule that benefited higher potash prices over shipped volumes, now the market will be fully competitive." Shock, horror!

At a time when Spain is back in the limelight on account of its ever-sprouting corruption scandals, the government is trying to switch public attention to the prospect of impending economic recovery. Last Thursday, when the National Statistics Institute (INE) reported a 0.90 percent drop in the active population unemployment rate (down to 26.26 percent from the previous quarter’s 27.16 percent), Economy Minister Luis de Guindos assured: “Despite all the difficulties, today I am convinced that the worst is over and that the Spanish economy will leave behind the negative growth rates.” Mariano Rajoy’s government may, as its predecessor did, announce “around the corner” recovery to keep the population’s hope alive and dodge uncomfortable matters such as corruption scandals, but in reality the country’s trend is quite worrying.

Now that the previously reported "fine" of $400 million which the firm just got slapped with following its manipulation of various energy markets, is fact...

• JPMORGAN AGREES TO PAY $410 MLN TO SETTLE U.S. ENERGY PROBE

... One may say JPM has just admitted it is the next Enron. One would be wrong: "JPMVEC admits the facts set forth in the agreement, but neither admits nor denies the violations." In other words, JPM is a Schrodinger Enron: it admits the facts that the company best known for manipulating electricity - a charge which in 2000 was enough to crush the company, and which is now a fine equal to 0.4% of the firm's $99.5 billion in revenues - but neither admits nor denies this. But the biggest question plaguing Jamie Dimon this morning, is whether he will pay the $410 million FERC find with a personal check... or petty cash.

Far Dan Loeb, gold has finally lost its lustre: "If we finally see accelerating growth rates, yields should normalize from the unusually low levels we have seen recently. The playbook for investors in that scenario is to focus on assets that will benefit from US growth while avoiding investments that are hurt when real yields rise, such as gold, emerging markets, and fixed income – all areas where we have very little exposure today. Indeed, we sold our long-held gold position early in the second quarter at approximately $1,450."

• "Ooops": Barclays reveals £12.8bn balance sheet hole (FT), Barclays Bows to Pressure With Share Sale (WSJ)
• Bank of Italy Inspecting Top Lenders' Books (WSJ)
• Obama to propose 'grand bargain' on corporate tax rate, infrastructure (Reuters)
• China injects funds into money markets, quelling fears (FT)
• Berlusconi faces verdict that could endanger Italian government (Reuters)
• Shale Threatens Saudi Economy, Warns Prince Alwaleed (WSJ)
• Qatar Finds Revolution Abroad Not as Easy as Stock Picks (BBG)
• Cities Begin Hiring Again (WSJ) - not to mention filing for bankruptcy
• Big Question Hangs Over Small-Caps (WSJ)
• China Politburo Pledges to Press On With Restructuring Economy (BBG)
• Bank Revenues Surge on Trading Over What Fed Will Do (BBG)

While the market's eyes were fixed on the near record slide in Japanese Industrial Production (even as its ears glazed over the latest commentary rerun from Aso) which did however lead to a 1.53% jump in the PenNikkeiStock market on hope of more stimulus to get floundering Abenomics back on track, the most important news from the overnight session is that the PBOC's love affair with its own tapering may have come and gone after the central bank came, looked at the surge in 7 day market repo rates, and unwilling to risk another mid-June episode where SHIBOR exploded to the mid-25% range, for the first first time since February injected RMB17 billion through a 7-day reverse repo. The PBOC also announced it would cut the RRR in the earthquake-hit Lushan area. And with that the illusion of a firm and resolute PBOC is shattered, however it did result in a tiny 0.7% bounce in the SHCOMP.

What is at stake is illustrated by the difference in oil consumption between Asia and the West. The former, exemplified by China and India, is still increasing its consumption growth. The latter, basically the OECD, has been using less oil each year since the crisis began in 2008. This is unsustainable. The OECD’s deepening recession is evidenced by its falling oil use while the fragility of the export dependent and imported energy dependent East’s growth prospects suggests that its real growth rate is about to peak or already has.