Archive - Jul 2013

Markit has released its global business confidence survey, and it makes for sobering reading. Due to sharp declines in business confidence in both the US and China, a new post crisis low has been reached in June. Only the UK was a notable exception, as business confidence there jumped. We would submit that this is no coincidence, as the pace of money supply growth is increasing sharply in the UK, while it it slowing down in both the US and China. The culprit for the slowdown in money supply growth in the US is lending by commercial banks, which is decelerating sharply even as monetary pumping by the central bank continues at full blast.

The current regime of extreme monetary policy that has become the new normal - to which we have become entirely desensitized and addicted - remains the biggest (and most dangerous) experiment in central planning in the 100 year history of the Fed. Trusting the beard and his band of PhDs to get this right may be a stretch though, as UBS' Art Cashin notes, their track record has not been stellar and as he notes from the 10th Annual Report of the Fed: "the Fed was supposed to extend credit only for 'productive' and not for 'speculative' purposes."

Microsoft's collapse last night is extending this morning as the stock holds at its 100DMA, down 10% from yesterday's close. The drop is knocking 24 points off the Dow and along with GOOG's damage is weighing heavily on the Tech sector overall (which was more evident in last night's Nikkei dump than in the US for now). The drop for Balmer's baby means a $30 billion loss of market cap - or one Schwab or Aflac or Freeport-McMoRan (or 2 Mattels).

UPDATE: Well that didn't last long - maybe just "Oops" would have been more appropriate

Michigan Governor and Detroit's emergency manager take the stage to explain it all...

While in the past President Obama has been more that willing to throw good money after bad and "refuse to let Detroit go bankrupt," it seems when push comes to shove - under the intense scrutiny of a nation awash in scandal, a drastically bifurcated congress - that despite the imploring from local congressmen for "moar" already - that the savior of the city will not this time ride to the rescue on his white horse. In a statement, the White House said they "are monitoring the situation in Detroit closely," with no hint - just as they have made clear for months - of any sort of Federal bailout. As USA Today notes, the federal government provided federal loans to prevent New York City from declaring bankruptcy during the 1970s. But times have changed; the federal government has debt and financial problems of its own, and a Detroit bailout could run into significant opposition in Congress and cause serious damage in the Muni market.

Yesterday, in a widely leaked move, the ECB announced it was lowering haircut higher rated collateral (and rising haircuts on lower rated collateral) for European banks in a move that is supposed to ease credit channels in Europe and boost lending. But will it? And what is the impact on actual eligible collateral as a result of this move. According to Goldman analysis, the impact of the ECB's move is virtually non-existent (but then why do it?) or 0.1% to be specific. Specifically, what yesterday's announcement does is boost the pool of eligible collateral, estimated at €15 trillion, by €20 billion.

The OECD has stated in a report commissioned by the G20 that there will be “global tax chaos” in the next few years due to falling tax revenues from multinational companies around the world.

Europe has denigrated into a strange place where fantasy replaces reality as necessitated by their governments and the Union that governs them. It is a world where anything but direct liabilities are not counted, where securitizations worth 50 cents on the Dollar are held at par and where both data and numbers are manipulated for the preservation of the State. Dreams are born of imagination, fed upon illusions, and put to death by reality. The guillotine returns after September 22, 2013.

For the first time since QE2 was announced (August 2010), the price of WTI Crude oil is now more expensive that Brent crude. The Brent-WTI spread has collapsed from over $23 in Feb 2013 and is now negative and notably below the long-run average level of around $0.98. At $109, WTI is the highest since March 2012. Gas prices - at the pump - continue to rise significantly reaching the highest since March, but given the lag to production, are set to reach well over $4.00 per gallon on average.

Coca-Cola, Yahoo, Intel, IBM, eBay, Google, GE and MSFT are just some of the household names that have disappointed on the revenue front so far.

• Detroit ‘Gut Kick’ Poses New Test for Long Suffering City (BBG)
• Florida lawmakers urge overhaul of 'Stand Your Ground' law (Reuters)
• Investors pour huge sums into US equity funds (FT)
• Snowden Standoff Threatens Obama-Putin Moscow Summit (BBG)
• China, U.S. companies' great hope, now a drag (Reuters)
• Morgan Stanley stock traders rebuild burned bridges (Reuters)
• Huawei spied for China, claims ex-CIA head Michael Hayden (FT)
• Gorilla Flipping Homes as Rebound Revives Rapid Trades (BBG)
• BRICS joint action at G20 summit may be wishful thinking (Reuters)

The PBOC just announced that China will scrap its bank lending rate floor and controls on bill discount rate. It will also allow banks to set lending rate based on commercial preinciples with a goal of promoting economic restructuring. China will continue differentiated lending policies for housing sector and will leave unchanged lending floating rates for home buyers.

With little going on today besides the just reported GE earnings, which beat consensus EPS expectations of $0.35 by the smallest possible increment but, as expected, missed consensus revenue of $35.56 printing at $35.12, and both the Japanese (which experienced a 500 point drop in minutes overnight) and Chinese (which closed below 2000 again) markets sliding, it is perhaps better to summarize the day that just was: Detroit City files for bankruptcy (send in Detroika!), Moody's take the US off negative outlook, Google and Microsoft miss on earnings and the S&P 500 hits a new record high. As DB says, the above certainly made for an eventful close to the US session after what was a fairly dull second day of testimony and Q&A for Bernanke. He has said all that can be said for now and we're left waiting for the data. And the earnings data so far has been abysmal if mostly on the top line, with corporate revenues now assured to double dip and decline for the second quarter in a row. And if the tech bellwethers all of which have been major disappointments to date and have guided down, are an indication of what is coming, Q3 may and will be even worse.

The backlash in Congress against the government’s monstrous spy program and the ridiculous notion that a secret court (the FISA court) grants any sort of oversight is growing, and it is a bipartisan effort. Rep. Bob Goodlatte (R-Va.), the chairman of the committee, said he was surprised that the programs had been kept secret for so long.

“Do you think a program of this magnitude gathering information involving a large number of people involved with telephone companies could be indefinitely kept secret from the American people?” Goodlatte asked.

“Well,” ODNI general counsel Robert S. Litt said with a slight smile, “we tried.”