Archive - Jul 2013

"It's noisy, it's really hot, fast, they rush you. Sometimes you don't even get breaks. All for $7.25? It's crazy," is how one worker described the conditions that have caused her and the rest of America's fast-food employees to go on strike today. They demand the right to unionize and better pay - calling for a raise in the minimum wage from $7.25 to $15. Workers chanted, "Supersize our wages," as spokespersons for the Fast Food Forward campaign explained the economic logic, "If they have more money in their pockets, they'll spend it right here, helping to boost the entire economy." Which leaves us asking the always awkward question - where does this new 'economy boosting' money come from for this 107% pay rise? With gas prices rising, rents soaring and many employees already reliant on food stamps and medicaid, "I can't even order something off the menu with what I earn," one worker noted, "It makes me wonder what I'm even doing there." Indeed it does with all those benefits on offer elsewhere.

While Mississippi (34.9%) and Louisiana (33.4%) have the highest percentage of obese adults, Bloomberg's latest data shows that Delaware and Oklahoma are getting fatter the fastest of all US states. Notably, every state has seen an increase in the level of obesity since 2000 (though D.C. and California have risen the lease). Colorado has the highest number of 'ideal weight' citizens per obese adult (4.83) but even there it has plunged from over 7 adults in 2000. Things are not getting better anywhere.

Just flashing red headlines for now:

• JPMORGAN ACCUSED BY U.S. REGULATOR OF MANIPULATING POWER MARKET
• JPMORGAN ACCUSED OF MANIPULATIVE ENERGY-BIDDING STRATEGIES
• JPMORGAN ACCUSED OF ENERGY-MARKET MANIPULATION IN 2010 AND 2011
• U.S. FERC ANNOUNCES JPMORGAN ALLEGED VIOLATIONS IN E-MAIL

And now we look forward to learning how many hundreds, or maybe even thousands, of cents the settlement will be, which will also include a full wristslapping pardon of Blythe Masters of course.

"There is a huge artificial boom going on," warns Jim Rogers as for the first time in history, all the world's major central banks are simultaneously printing money. While he remains adamant of the positive outlook for agriculture, the fact that "the whole world is trying to debase their currencies," produces a "major disconnect" between asset values and economic realities. Stocks are at new highs, not based on reality, but on printing presses "and that cannot work... this is going to end very very badly." While not all western economies are as egregious as others, the intertwined nature means their fate remains very much tethered to the US, and as Rogers concludes, "everybody will suffer, be very very careful as these are perilous times."

Today's most eagerly anticipated earnings release, that of Herbalife, also known as the focus of the most entertaining feud of 2013 between Bill Ackman and Carl Icahn, were just released, and they are a blowout.

• HERBALIFE LTD. 2Q ADJ. EPS $1.41, EST. $1.18
• HERBALIFE 2Q REV. $1.22B, EST. $1.16B
• HERBALIFE OPERATING CASH FLOW $214 MILLION
• HERBALIFE SEES YR ADJ. EPS $4.83-$4.95, EST. $4.78
• the always amusing: HERBALIFE 2Q HAS EXPENSES 7C-SHR ON 'ATTACKS OF CO BUSINESS'

The biggest news as always was not reported: it was the most recent short interest in the name. At 36% it means much more pain in store for shorts. But the punchline is that Herbalife just announced a $0.30 dividend per share: a dividend which will to a big extent come straight out of Bill Ackman's pocket.

Ahead of a week full of data and central banks, it is likely unsurprising that volumes were dismal and protection/hedging was sought. Once again we saw dips bought with a rush to get markets green (after the collapse in Asia overnight weighed very modestly on Europe and US markets) but once a few people realized the impact of the Treasury's latest refunding data (must read) stocks did sell off into the close. This was the worst day for the S&P futures in a month with a 0.4% sell-off. Once cash markets closed,futures popped back up to VWAP. The USD ended the day unchanged (but AUD was 0.7% weaker and JPY 0.4% stronger as carry unwinds are clear). Commodities slid on the carry weakness with Silver -0.8% and gold holding $1330 with a small loss. Brent-WTI pushed further ahead to $3 (with a small loss in WTI under $104.50). Treasury yields leaked higher with the long-end underperforming (30Y only +3bps). Builders, financials, and energy underperformed on the day; Utes and Staples were best.

If there was any doubt that the Fed would proceed with tapering its monthly deficit monetization (i.e., $85 billion in POMO/S&P500 flow injection) over the next few months, those were just laid to rest courtesy of the Treasury's quarterly refunding statement which was filed moments ago, and specifically its Marketable Borrowing Estimates.

Last week’s House debate on the Defense Appropriations bill for 2014 produced a bit more drama than usual. Had Amash’s amendment passed, it would have been a significant symbolic victory over the administration’s massive violations of our Fourth Amendment protections. But we should be careful about believing that even if it had somehow miraculously survived the Senate vote and the President’s veto, it would have resulted in any significant change in how the Intelligence Community would behave toward Americans. The US government has built the largest and most sophisticated spying apparatus in the history of the world. Rep. Amash’s amendment was an important move to at least bring attention to what the US intelligence community has become: an incredibly powerful conglomeration of secret government agencies that seem to view Americans as the real threat.

With all eyes fixed on GDP and unemployment data this week (and all their revised and propagandized unreality) for more hints at if (not when) the Fed will Taper; the dismal reality that few seem willing to admit is that it is when (not if) and that the announcement of a "Taper" has nothing to do with the economy. There are three key factors driving this decision: Bernanke's bubble-blowing and bond-market-breaking legacy, the political 'clean slate' his successor needs, and, most importantly, the fear that QE will be discovered for what it is - monetization. As BoJ's Kuroda admitted last night "if QE is seen as financing debt, this could lead to rise in yields." With deficits falling, the Fed's real actions will be exposed (unless QE is tapered) and as Kyle Bass has explained before, it was out of the hands of the BOJ (or The Fed) and entirely up to market psychology.

With the case for the next Fed chairman having devolved to the most ridiculous of decision trees, such as Nancy Pelosi's "it would be great to have a woman", because apparently gender diversity trumps everything in the eyes of the California democrat, the choice of Bernanke's successor is now more nebulous than ever. It has certainly not been aided by the periodic floating of the Larry Summers trial balloon, especially as originating from the Fed's WSJ mouthpiece who one week presents Summers as the favorite and the next skewers his chances. However, one person for whom the Summers vote is essentially a done deal with 90% odds, is Scotiabank's Guy Haselmann. Here is his logic.

“He who goes a-borrowing, goes a-sorrowing.”

The quote comes from Ben Franklin. But it was recalled to us neither by America’s president nor Britain’s prime minister. Instead, the Telegraph in London reported it from the mouth of Cheng Siwei, a “top member of the Communist hierarchy.” What goes around comes around. The Anglo-Saxons have forgotten what makes a successful economy. The Chinese have remembered.

Much has been made this weekend of the WSJ story that Janet Yellen (and her dovish counterparts) have been so much more accurate as forecasters than the hawks on the FOMC in recent years. This along with pitting her against the asinine Larry Summers appears to create a shoe-in for 'damn-it-Janet' to take the helm as the new Maestro (or mistress?). But, as CNBC's Rick Santelli points out, it is ludicrous to proclaim a 'winner' based on inflation predictions, as transmission channels of the endless money-printing are jammed (and besides the models that predicted economic growth and new hiring from this 'spiking the punchbowl' have failed dismally). Simply put, Santelli analogizes, "the Cubs haven't won the World Series in a century, but if I poll all of the players/managers and see which predicted we wouldn't win the World Series; and whoever guessed that right, we will make them the manager, does that guarantee me that next year we're going to win the World Series?" The bottom-line, unless GDP shows sustainable growth, the rest is just a "silly discussion."

A month ago we noted the out-squidding of Goldman Sachs as ex-JPMorganite Jacob Frenkel looked set to replace Fischer as the head of the Bank of Israel. Four weeks later and it seems the chairman of the all-important Group-of-30 has had enough, and when it comes to "squidding" into central banks, Goldman truly has no comparable.

• FRENKEL SAYS HE WITHDRAWS CANDIDACY FOR BANK OF ISRAEL CHIEF
• FRENKEL SAYS HE SUFFERED `AVALANCHE' OF ABUSE

Poor thing. And this is after his actual 'acceptance' was already agreed.

Silver, like gold, is largely subject to the same underlying supply/demand dynamics (whether legal or not) where on the margin it trades merely as a precious metal, and those misguided pundits out there who claim that the drop in gold Comex holdings is purely a function of ETF reallocation, are surprisingly mum when it comes to explaining Comex silver which has not followed the move of gold in physical holdings and is in fact near all time holding highs despite an even more aggressive plunge in its price. Alternatively if indeed gold's inventory plunge was driven by the permissive nature of Singapore vaults as willing recipients for all the gold that has departed the assorted Comex system vaults, and thus are merely a physical receptacle to absorb the pent up Chinese "golden" demand, it would explain why this has not happened to silver. At least not yet. That may change very soon because as Bloomberg reports, silver is the new gold when it comes to vaulting in Singapore, and thus China's precious metal warehousing ambitions.

Here’s a question– if you’re in the Land of the Free, do you think those green pieces of paper in your wallet are dollars? They’re not. Those green pieces of paper are Federal Reserve notes. “Notes” in this case meaning liabilities to the central bank of the United States. That makes you, me, and anyone else holding those green pieces of paper essentially creditors of the Federal Reserve, whether we signed up for it or not. And at this point, thanks to a long-standing policy of wanton money printing, the Fed has more liabilities than ever before in its history. By an enormous margin. Given that the Fed’s assets are so closely tied to the finances of the US government, the outlook should concern independent, thinking people. The US, Japan, and Europe are already too indebted to bail out their central banks. An insolvent government cannot bail out an insolvent central bank.