Archive - Aug 13, 2013

For the first time in 2016 according to estimates, the US will not be the most economically-powerful country in the world, but the second since World War II.

Somewhat ironically, the "punishment" of Goldman and JPMorgan has boiled down to the punishment, or lack thereof, of two Frenchmen. On one hand, we have Fabrice Tourre, who we are led to believe (laughably so) was solely-responsible for all CDO-related transgressions at Goldman in the 2003-2007 period. On the other, we have the London Whale, former JPMorgan employee and also French citizen, Bruno Iksil who was the catalyst and public face, that led to the unwind of the biggest prop trading desk in history. But while Fabulous Fab was scapegoated to the full extend of the crony law, Bruno is set to walk. The reason: the London Whale has become the London Snitch.

The Justice department is said to plan to block the AMR-US airline merger:

*AMR-US AIRWAYS DEAL SAID TO BE SUBJECT OF U.S. ANTITRUST SUIT
*US AIRWAYS ALSO SUED BY TEXAS, ARIZONA, FLORIDA, DC, VIRGINIA
*JUSTICE DEPARTMENT SAID TO PLAN SUIT TO BLOCK AIRLINE MERGER
*AMR CAN EMERGE FROM BANKRUPTCY WITHOUT MERGER, U.S. SAYS

Both stocks are down notably on the news - AMR -22%, LCC -11%; and the rest of the airlines sector is weakening. Among the DoJ's 'gotchas - "A US Airways document said that capacity reductions have “enabled” fare increases." Perhaps the lowly lobbyists of the Airline industry should have 'donated' just a little more money...?

BANZAI7 BEVERAGE WARNING!

We can't wait to hear Bob Pisani explain this one... JPY weakness continues this morning (now -2% on the week) but early in the European day (around the time of the German confidence survey), carry-traders rotated greatly into peripheral European debt and out of US Treasuries and US equities... US equities accelerated lower in the last few minutes following the Business Inventories print.

Sales of silver coins by the U.S. Mint have set a record high in the first half of 2013 seeing the best start to a year ever. 

Year to date Silver Eagle sales are at 30.3 million, a record pace that was supported by soaring July sales. Silver Eagle sales had a record year in 2011. That year, it took until September 21, 2011, to reach above 30 million in sales for the year.

Therefore, 2013 looks set to be a record year for Silver Eagle sales.

The Greekovery (where a -4.6% GDP collapse is seen as positive) may be televized, but sadly it will not be electrified.

Why sell cocaine at a 200% markup when there are much bigger profits to be had in this moral hazard economy funded, government protected business.

Wonder why the Fed and the banks are so desperate to reflate the second housing bubble, to the delight of flippers and taxpayer consequences (deja vu) be damned? Simple: as Goldman points out in a note released last night, "without the boost from housing, real GDP growth would fall below 1% this year." That's the revised GDP by the way, the one that now includes iTunes song sales and underfunded pension plans in the sumtotal. Which in reality means that ex housing, GDP would almost certainly be negative. So the bigger question is what happens to housing which has already seen a shock to the system following the surge in interest rates in the past month and which hobbled both homebuilders and mortgage applications? This is what Goldman sees there: "On house prices, we have started to see the first signs of deceleration and expect a slowdown from the 10%+ pace observed over the past year. Our bottom-up house price model projects 4-5% annual growth rate in the next two years." Alas, since prices moves from top and bottom inflection point never happen in a straight line as everyone rushes to buy, or sell as the case may be, resulting in a skewed and pronounced move, once the reality seeps in that the artificial housing 'recovery' is over, watch what happens when everyone rushes for the door. That goes for GDP as well.

In the past the Jackson Hole conference very much revolved around the Fed chairman with the opening remarks often the top (and most market-moving) news from the junket. Despite an interesting docket of speakers and presenters from a central banking perspective (as BofAML details below), with no major Fed officials scheduled to speak (and only Kuroda turning up from the rest of the major world central banks), the markets are likely to pay a lot less attention to Jackson Hole than in the past.

While today's retail sales headline data was the second miss in a row (the "longest stretch" of misses going back to january 2012), printing at 0.2% on expectations of 0.3% (with last month's 0.4% miss revised to 0.6%), the internal data was modestly better, printing at 0.5% ex autos (exp. 0.4%), and in line ex autos and gas which came right on top of the expected 0.4% increase. So overall, a wash report, and one which doesnt tip the scales in either direction. Since this was the most important August report left ahead of September, any hopes the Fed's taper would be delayed based on this data point can now be dashed. And yet, there was some other data inside the retail sales report which showed that the real weakness for the economy, that focusing on the marginal provider of "net worth" housing may be tapering, with sales at both Furniture and Home Furnishing Store Sales and Building Material and Garden Equipment suppliers declining by -1.4% and by -0.4%, further confirming that the second housing bubble has not only peaked by but going forward will be deflating ever faster.

The last time a big financial firm rushed into buying rental exposure (just as others were quietly leaving the sector in droves and when the ingenious Wall Street was coming up with such derivatives as Rent-Backed Securities to dump their exposure to dumb yield-starved Germans and Asians), it had a very unhappy ending for the buyer. That transaction of course was Lehman Brothers' rushed acquisition of landlord Archstone, which as many have noted over the years, was a big contributor to the Lehman bankruptcy once the rental payments dried up. But then again, as others have pointed out, Lehman was so deep in its real estate exposure by then it really had no choice but to keep doubling down all the way to the bitter end. Which may explain why while most other brand name hedge funds and P/E firms are now cashing out of the US housing market whose second bubble may already have peaked (only last night Goldman said that "On house prices, we have started to see the first signs of deceleration and expect a slowdown"), Blackstone, which is now the US' largest landlord, is digging in its heels and is not letting go. In fact, it is adding to its exposure - as the WSJ reported overnight, Blackstone has invested another $1 billion to purchase GE's stake in 80 apartment complexes amounting to 30,000 apartment units, located in Dallas, Atlanta and other parts of Texas and the Southeast.

• U.S. Regulator Subpoenas Banks Over Long Warehouse Queues (BBG)
• Apple Said to Prepare Holiday Refresh of IPhones to IPads (BBG)
• Fed's Yellen Says Stance on Banks Hardened (WSJ)
• Mexico opens up its energy sector (FT)
• Spin: Greek GDP marks gradual deceleration of recession (FT) ... spin aside, it dropped 4.6%, and in reality, probably over 10%
• Made-in-Canada Solution For BlackBerry Avoids Nortel Fate (BBG)
• America's Farm-Labor Pool Is Graying (WSJ)
• Video of 'lame' cattle stirs new concern over growth drugs (Reuters)
• Paulson Bid for Steinway Trumps Kohlberg Offer (WSJ)
• Egyptian government yet to decide on pro-Mursi vigils (Reuters)

It's only fitting that in a bizarro new normal, the news that passes for positive is either conflicting, reflexive or, well, simply bizarre. Last night was no exception as the "good" news came in the form of speculation that in order to promote its consumption tax hike, the Abe government would consider a corporate tax cut. How that helps the country with the 1 quadrillion yen in debt is not exactly clear, or how it makes consumer tax hikes any more palatable in a nation in which more people than anywhere in the world are retired and elderly, and thus removed from the corporate lifecycle, is just as nebulous. But the market liked it. Just as it liked the good ole' European cop out, of posting a surge in consumer confidence, or relying on reflexive indicators to represent an improvement in the economy, when in reality the only thing "improving" is the stock market. This happened when the German ZEW Economic Sentiment survey soared from 36.3 to 42.0 on expectations of a 39.9 print. So one must buy futures, or that's what the GETCO algo programming says.

First it was the JCPetanic, then the JCPanic, then it became the JCPandemonium, and moments ago, the situation at the doomed retailer was downgraded once again, this time simply to JCPathetic, as the cash-burning, slow motion circus crash lurches from farce to farce, the latest news being that in a long overdue move, Bill Ackman has thrown in the towel on JCPenney and has resigned from the board. Does this mean Ackman will next be offloading his nearly 40 million JCP shares next, and just who will buy them if that is the case, we shall find out shortly. Also, maybe the company can provide an update on what is really important: its nearly (or maybe it is now more than) $2 million per day cash burn rate.