Archive - Jul 5, 2013

The situation in Egypt has not been tenable since the Muslim Brotherhood and President Mohamed Morsi took over, post-revolution, but now that the military has stepped in, ousted Morsi and placed him in detention, foreign investors are celebrating. No one knows what’s going to happen next, but the general consensus—at least for investors—is that things couldn’t get any worse, only better. (Unless you’re Qatari, but more about that later.)

Presented with little comment aside to note that the 6 point vertical ramp in the S&P 500 (which just happened to stall perfectly at VWAP) was accompanied by no news, no other-asset-class support, and a smack-down in front-end VIX... S&P futures are back above the 50DMA once again intraday (as Discretionary names outperform and builders are battered). Did 3:30PM Ramp Capital leave for the Hamptons early?

Even as the manufacturing jobs continue to collapse, posting their fourth consecutive monthly drop in June to 11.964 million jobs, minimum wage waiters and bartenders have never been happier. In June Restaurant and Bar employees just hit a new all time high of 10,339,800 workers, increasing by a whopping 51,700 in one month. 

So it seems the full decay life of an ECB head is now 25 hours as the gloriously dovish comments from Draghi yesterday (that really said no liquidity withdrawal anytime soon) that spiked stocks up 1-4% across Europe have been battered back to unchanged by a good is bad jobs number in the US bringing the end of the Fed punchbowl ever closer. On the week, Portuguese bonds ended 68bps wider (with Spain and Italy 10bps tighter); Treasuries are underperforming Bunds by a very notable 21bps on the week. Despite stocks being generally unchanged (with Italy/Spain up around 2%), credit markets closed notably wider on the week. EURUSD is down around 200 pips on the week with the last 2 days the worst in almost 4 months.

We as a nation had an unparalleled, historic opportunity to set things right in the aftermath of the 2008 financial meltdown. Alas, we blew it. Instead of tearing down what had failed spectacularly, we chose to do more of what failed spectacularly: cartel-crony capitalism, centralized wealth and power and an expansion of our financialized debtocracy.

Don't consider this investment advice, but if you leave your money in this bank after reading this article then your a fool who deserves to lose every euro that gets confiscated. Just my personal opinion, of course.

We noted earlier in the week how day after day we have seen equity markets rally exuberantly early on, only to fade ingloriously back to credit's less sanguine perspective by the close. It appears, just as we mockingly pointed out on Wednesday's half-day close ramp, that the market seemed to have forgotten that there is a second half to the day and sure enough, as reality sinks in that Taper is nearer than equity asset-gatherers hoped (just as every other market already noted), equity markets are dropping rapidly back to Treasuries, credit, and precious metals' view of the world today... Equity markets have given up all of yesterday's Draghi/Carney jawboning gains...

Until today, Goldman expected the Fed's tapering to start in December. Not any more: following today's better for part-time jobs than expected data, the squid has pulled its tapering prediction up to the September FOMC meeting: just what Zero Hedge said 2 months ago. But what just slapped ES across the face is the following from FRBNY's informal advisor Hatzius: "We now expect purchases to continue through Q2 2014 (vs. our prior forecast of Q3 2014), in line with the guidance given by Chairman Bernanke at the last FOMC press conference." That's ok Goldman, we are used to you being wrong. Speaking of, any more Stolper recos?

While we already showed that according to the household survey the quality component of the June jobs report was absolutely abysmal, with part-time jobs representing more than all jobs added in June, we find that according to the establishment survey things were no better. In fact, as we show month after month, the bulk of the jobs additions were concentrated in the lowest paying industries.

Egypt's Islamists launched a nationwide "day of resistance" against the military coup that ousted democratically elected President Morsi today and AFP is reporting 3 are dead already following earlier warning shots as the crowd approached the barracks where Morsi is being held.

• *SHOTS FIRED DURING DEMO AT PRO-MURSI DEMONSTRATION: BBC TWEETS
• *3 DEAD IN GUNFIRE BETWEEN EGYPT ARMY, DEMOS, AFP SAYS

As WaPo reports, tens of thousands listened as a speaker called Morsi's removal from power an assault on the dignity of the people of Egypt, adding "there are Americans and Zionists behind this." Of course, as we noted here, the anti-American sentiment has been strong throughout, albeit hidden by most mainstream media channels.

As a reminder: jobs have quantity and quality components. The quantity component was good enough to convince the 10 Year the taper is imminent (if not stocks, which continue to trade dislocated from any and all fundamentals). But how about the quality? In a word: not good. In June, the household survey reported that part-time jobs soared by 360,000 to 28,059,000 - an all time record high. Full time jobs? Down 240,000.  And looking back at the entire year, so far in 2013, just 130K Full-Time Jobs have been added, offset by a whopping 557K Part-Time jobs. And there is your jobs "quality" leading to today's market euphoria (if only for now).

UPDATE: S&P futures collapsing quickly - now down from Payrolls

The initial kneejerk reaction in stocks was oddly 'good-is-good' higher after the better-than-expected headline data on payrolls - which perhaps signalled that Taper is nearer - but FX, bond, and precious metals markets were clearly in Taper-On mode. Treasury yields cracked 13bps higher, Gold and Silver dropped 1-2%, outdates for Eurodollar futures dropped notably, and the USD jumped around 0.5% almost uniformly. As an illiquid equity market soaks in the reality, some of that initial surge is fading...

So much for any doubts about a September taper: with the street expecting a 165K NFP number for June, the actual print of 195K following an upward revised May print of 195K as well, means the Fed's September flow fade, aka Taper, is now virtually assured. On the other side, the Household Survey printed a 160K increase in jobs. The Unemployment Rate stayed at 7.6% despite expectations of a drop to 7.5%, although the real action was in the underemployment rate which exploded from 13.8% to 14.3%.

Our reality has changed in the last twenty-four hours. The Bank of England and the European Central Bank have re-affirmed their old positions since the Fed has changed tacks. It may well be, as Europe is in much worse financial condition than the United States, that there is a policy reason for the European positions but it may well also be a calculated move to devalue the major European currencies. Whatever the actual reasons, the European statements have certainly sounded the trumpet that the “Currency Wars” have reignited.  It is a dangerous game when the world’s central banks that have been working for the last five years in unison and now they head down different paths.