Archive - Jul 2013

That Marx's prescription for a socialist/Communist alternative to capitalism failed does not necessarily negate his critique of capitalism. Marx spent hundreds of pages analyzing capital and capitalism and relatively few sketching out a pie-in-the-sky alternative that was not grounded in historical examples or working models. So it is no surprise that his prescriptive work is an occasionally risible historical curiosity while his critique stands as a systemic analysis. Marx got a number of things right, one of which appears to be playing out on a global scale.

As Erskine Bowles notes "Everyone claims that they’re not going to let our nation default. And Lord knows we all ought to pray that they don’t. But, could it happen? You bet." But it seems the world has forgotten that between the "grand bargain' negotiations and the looming final-final debt ceiling deadline, the US fiscal situation remains troubled at best. While Washington is "only capable of focusing on one big issue at a time," dominated currently by espionage, immigration, and scandals, Bowles notes, from mid-September to mid-November the fiscal issues will be forced into the headlines and he believes there is only a 20-25% chance a deal is struck. As Stone & McCarthy notes, the Treasury will exhaust its extraordinary measures to create borrowing authority on October 31, and run out of cash on November 1.

One wonders: is bringing a full-sized fire extinguisher on your next Dreamliner trip allowed by the TSA, or is there a 100 mL size limit?

On the even of Bastille Weekend and the 100th anniversary of the Tour de France, you know it must be bad when the French-company-owned ratings agency Fitch is forced to remove its AAA rating from France. Key drivers include Debt-to-GDP projections rising and substantially weaker economic output and forecasts. Full statement below...

*SNCF CHAIRMAN SAYS TRAIN IN CRASH HAD ABOUT 370 PASSENGERS
*SNCF CHAIRMAN PEPY SAYS TRAIN CARS 3, 4, FIRST DERAILED

UPDATE: Boeing stock now down over 6% from pre-news, testing 50DMA

First it was imploding peripheral bond markets, now Europe is closing off the weak with even worse news, following reports of a burning Ethiopian Airlines 787 Dreamliner in Heathrow as well as news of a commuter train crash in Paris with numerous trapped and 8 dead according to Parisien. Boeing stock getting monkeyhammered on this latest ongoing fiasco, which for Boeing's sake better not involve the Lithium batteries...

In what has to be the most insane level of desperation, the Spanish banking system is lobbying to turn its deferred tax 'assets' into fungible capital to meet new stricter Basel III requirements. In other words, the Spanish banks believe that capitalizing historical losses provides a fungible 'stash' of capital against future losses... Following this morning's round of incredulity from the Spaniards, we have no words...

The "mutinying" half of the Fed - that which the FOMC minutes indicated wanted an end to QE by the end of 2013 - is not going to take Bernanke's Wednesday steamrolling lying down. Enter Charles Plosser, who becomes a voting member next year:

• PLOSSER SAYS FED SHOULD HALT QE BY END OF THIS YEAR

Good luck there. But here is the punchline:

• PLOSSER SAYS 'WE DONT WANT TO CREATE ANOTHER HOUSING BOOM'

Finally, someone from the Fed admits it was Greenspan's and Bernanke's ruinous cheap money policies that created the last housing bubble. As for preventing another housing "boom" or bubble as it is popularly known, we have two words: too late.

Using simply math, it's easy to calculate that the jig is up in Portugal. Between now and this time next year, we'll likely see defaults and/or restructurings.

Following a handsome bounce driven by Draghi, Carney, and various Fed officials promising moar, peripheral European bonds and stocks are having a bad day (and week). Greece, Portugal, Spain, and Italy are all ending the week lower (after solid performance mid-week) with Germany's DAX seeing the benefits of a rotation from high-beta momo with a 5.1% rise on the week (the best week in 20 months!). Safe-haven flows dominated in bonds; Bunds rallied slightly more than Treasuries on the week but once again Peripheral nations collapsed. Spanish bond spreads jumped the most in a year. Italy was notably weak, but Portugal has seen spreads jump 28% in the last 2 weeks (the worst in over 3 years!). EURUSD had its best week in 5 weeks - and despite the peripheral collapse, Europe's VIX had its best (drop) week in 4 months ending at 19%.

Following closely on the heels of Barclays significant downgrade, JPMorgan has cut its forecast for second-quarter GDP by 50% to a mere 1% growth (from their previous 2% expectation). Citing downside surprises to inventories, they note that "Fed officials won't be thrilled about easing back on stimulus in September in the face of back-to-back one-handles on GDP growth." Have no fear tyhough, as the rest of the year prmises to hockey-stick right back up to 2.5% (and 2.7% in 2014).

Isn't it ironic that 30 years later, those who refuse to "remove themselves from the struggle between right and wrong, between good and evil" and those "who speak out against those who would place the United States in a position of military and moral inferiority" are forced to seek asylum in... the Evil Empire?

While exaggerating the size of things is nothing new to the human race, and as European politicians have proven - 'sometimes you have to lie'" - it appears the bubble in rappers' net worths has never been bigger. As Bloomberg Businessweek notes, fresh off of Jay-Z’s new album is the track Versus, on which he chides fellow hip-hop artists and their dubious tales of extraordinary wealth: “The truth in my verses, versus, your metaphors about what your net worth is.” Like Jay-Z, we’ve long been skeptical of just how wealthy some hip-hop stars claim to be, so we created a way to separate the truly rich from the loud-mouth lyricists.

While everyone is focused on whether Mr. Burns, aka Larry Summers  will take over for Ben Bernanke (he won't), lots of peripheral resignations are flying around. the most recent one: that of the U.S. secretary of the $60-billion budget and 240,000 employees Department of Homeland Security - Janet Napolitano, who will be named the next president of the University of California system. As the LA Times reports, "nothing was pushing her out of Washington now, although the Senate’s recently approved compromise plan on immigration faces an uncertain fate in the Republican-controlled House." The good news: we await for UCLA to be promptly upgraded to AAA and issue bonds inside of the US.

In an odd reversal of recent trends, the future expectations sub-index of the UMich consumer confidence survey fell (lowest in 3 months) as the current rose notably (to its highest in 6 years). Is hope fading? Perhaps it is the spike in gas prices? Or the spike in mortgage rates? Critically though, this is the first miss of expectations since December 2012 as inflation expectations also surged to the highs of the year.