Archive - Aug 15, 2013

Presented with no comment (but an ugly sense of deja vu)...

So rising rates are "a positive"? The Fed would "never allow" rates to rise unless all is well with the world? Well it seems the 10Y yield smashing to new 2Y highs along with some mixed economic data (and a TIC dataset showing the rest of the world is losing confidence in the bond) is enough to set investors rotating out of stocks and bonds and into cash (as the USD surges). The S&P is at one-month lows. The belly is underperforming as 7Y is +23bps on the week, homebuilders are getting monkey-hammered (-4.3% on the week), and AUD is getting smashed lower as carry unwinds persist. The Dow is holding right at its 100DMA (and the S&P 500 at its 50DMA). After 6 Hindenburgs in 8 days it is perhaps no surprise but we note that here are only 6 New 52wk highs today and 303 new 52wk lows.

From last month's cycle-leading 19.8 print, Philly Fed printed a disappointing (but rather preduictably cyclical drop to 9.3). The same pattern we have seen in economic data (post QEs) has happened once again for the fourth year in a row as the headline print dropped the most since November 2012. Missing expectations after such a cognitively reassuring pront last month is hard for some take we are sure but under the surface things are even worse as the average workweek sub-index turned negative, new orders dumped, and both current and futures expectations for number of employees collapsed.

And the bid hits just keep on coming.

While Americans were blissfully BTFD in June, and enjoying the media propaganda that "all is well" and the beard has their back (he does, but not in the conventionally accepted way) foreigners were selling. Did we say selling? Pardon, we meant dumping with a vengeance, throwing out the boatload with the bathwater, with both hands and feet and getting to da choppa.

The latest World Gold Council Gold Demand Trends report, which covers the period April-June 2013, confirms again how recent falls in the gold price were due to speculators selling paper gold rather than a decline in actual demand for physical gold.

It highlights, once again, that the price falls have generated significant increases in demand, most notably from store of wealth, jewelry, bullion coin and bar buyers  in Turkey, Dubai and the Middle East, Vietnam, India, China and the rest of Asia.

Meanwhile speculators, primarily banks and hedge funds, exited their positions in the gold ETFs and futures markets. This led to liquidations of just 402 tonnes of ETF gold worth only $18.3 billion.

Industrial production was unchanged in July, missing expectation of a modest 0.3% rise (making this the 4th miss in a row). Under the surface things are not much better as Consumer goods and non-industrial supplies production both fell their most in 3 months (with only Materials production rising). Capacity Utlization also missed expectations (77.6% vs 77.9% exp.) and has seen the biggest 4 month slide since October 2012 as manufacturing production fell 0.1% on the month (the first drop in 3 months). So how's that H2 recovery shaping up?

With all the excitement over France and Germany's emergence from recession based on this morning's advance first-guess GDP data - a recovery-less recovery the likes of which the US has been languishing in for years - we thought it worth a reminder of the hopeful hockey-stick growth embedded in the IMF's forecast for the European Union. Assuming that Europe is still clinging together in 2016, we present the IMF's dreams of the future.. and most intriguingly the OECD's forecast that Germany will grow at a mere 1.1% for the next 50%.

If there was one thing the bulls did not want this morning, it was a goldilocks report in the trifecta of economic data, which included CPI, Initial Claims and the Empire Fed. Sadly, Goldilocks is precisely what they got with CPI printing just as expected, up 0.2% from June, and up 2.0% from a year ago (ex food and energy also in line at 0.2%), claims coming modestly better than expected at 320K vs Expectations of 335K, and finally the Empire Fed offsetting the sligh claims beat by printing at 8.24 on expectations of 10.00, down from 9.46 in July. As a reminder, only a big economic shock could have derailed the Fed's September taper intentions. So far it is not coming, which means only the August NFP report is left.

Up 115bps in 3 months, the 10Y Treasury bond yield just broke above 2.7535% - a level not seen since August 2011. The 3.5% 'disorderly rotation' level remains the next 'target' but we can't help but notice the similarity to the Oct 2010 to Feb 2011 move...

It's a Carl iCahn world, and 13-Fs are nothing more than 45 day old tweets. Also, with Ben Bernanke Chief Risk Manager of the developed world, there is absolutely no point to be invested in hedge funds (why - there is simply no risk, until Ben loses control, then no amount of hedging will help anyone), and as such what "hedge" funds are buying is irrelevant. But since the cottage industry of alphacloners still exists, here, via RanSquawk and Fly, is the full June 30 holding recap of the usual suspects.

• This won't end well: Islamists call Cairo protest march as Egypt death toll mounts (Reuters)
• JPMorgan Said to Expect Multiple Fines for Whale Loss (BBG)
• Ex-bosses at JPMorgan unlikely to face charges in 'Whale' scandal (Reuters)
• China could target oil firms, telecoms, banks in price probes (Reuters)
• For once, it's not the weather's fault: U.K. Retail Sales Increase More Than Forecast on Heatwave (BBG)
• Japanese visits to shrine on war anniversary anger China (Reuters)
• India Fighting Worst Crisis Since ’91 Seeks to Buoy Rupee (BBG)
• Japan Signals Corporate Tax Cut a Long Shot as Deflation Eases (Reuters)
• Indonesia Tackles Graft in Energy Sector (Reuters)
• Merkel Touts Strength of German Economy (WSJ)
• and... British stuntman who parachuted into London Olympics opening ceremony as James Bond dies in fall (AP)

For those who think this article is repost of our May recap of Wal-Mart's Q1 earnings, you are forgiven: after all it was almost a carbon copy: "Wal-Mart Misses Revenue, Guides Below Expectations: Weather Among Factors Blamed." Well, as we expected, Wal-Mart just missed, and guided lower, although at least the company appears not to have blamed the weather for the second quarter in a row. Of course, that does not mean WMT didn't find spacegoats, and while it blamed the usual suspects of consumer spending and FX headwinds, it also accused the payroll tax of being the reason for a 0.5% drop in comp store sales. But didn't economists everywhere say the payroll tax' impact is now neligible? Finally, WMT blames the lack of grocery inflation. Really? Maybe stop cutting the price-equivalent size of your portions and the inflation will materialize.

In a session that has been painfully boring so far (yet which should pick up with CPI, jobless claims, industrial production and the NY Empire Fed on deck, as well as Wal-Mart earnings which will no doubt reflect the continuing disappointing retail plight) perhaps the only notable news was that Japan - the nation that brought you "Fukushima is contained" - was caught in yet another lie. Recall that the upside catalyst (and source of Yen weakness) two days ago was what we classified then as "paradoxical news" that Japan would cut corporate taxes in a move that somehow would offset the upcoming consumption tax hike. Turns out that, as our gut sense indicated, this was merely yet another BS trial balloon out of Japan, which admitted overnight that the entire report was a lie.

Richard Ebeling on Fed insolvency (technically, it's a nolo due to non-GAAP accounting gimmicks).  And, Dean Baker demonizes your favorite False Profits[/Prophets?]: Greenspan, Bernanke and...Summers.