Archive - Aug 21, 2013

The US is back at it again.

This morning we woke up to the horrible news that hundreds of people had died following the use of nerve gas in an area close to Damascus in an attack that the "democratic" media, and the Qatari mercenaries, scrambled to pin on the Assad regime. Just like in June the US "found" Assad had used chemcial weapons, only for the UN and Russia to accuse the US of fabricating the data, and for the chemical weapon warehouse of the rebels to be uncovered shortly thereafter, which meant the Syria narrative would have to be put on hiatus for a few months: after all the lies were getting perilously close to those used by Bush in the Iraqi WMD fiasco. Well, the administration appears certain enough time has passed by and has relaunched the old "blame Assad" plotline, with the WSJ reporting minutes ago that the US "sees strong indications" that Syria's government used chemical weapons in the attacks. What those are it is unclear as the US does not actually have presence on the ground, and neither have any UN inspectors been able to investigate. But why not go for round two of the false flag fabrication: maybe this time it will fly?

In spite of the #winning China PMI print, the bloodbath continues in Asia. EM FX are all getting slayed against the USD with IDR -3%!! INR now -1.6% today alone, breaking above 65 to the USD - a new record low. Stock markets are a sea of red with MSCI AsiaPac (Ex-Japan) down for the 4th day in a row to one-month lows (as even the Shanghai Composite has given up its gains). Philippines caught up after being closed since Friday and is down 6%. US Treasuries continue being sold (10Y hit 2.9250%) but are seeing a small bid as India opens deep in the red (time to lease that gold it would seem). The precious metal is a little lower overnight (gapping down on the China PMI news). There is no silver lining here as tonight's action is about the worst of the last week or so...

Presented with no comment...

Welcome to the new 'part-time' normal (as first defined here in 2010)...

From the lowest print in 12 months at 47.7 in July, HSBC's China Flash PMI just printed at 50.1 (massively outdoing the expected 48.2) and jumping by its most in three years month-over-month. It's a miracle, we hear you cry (especially given that CAT Asia/Pac sales collapsed 28% YoY)... In spite of new export orders dropping at a faster rate than last month and employment decreasing at a faster pace, it seems there was enough inventory decompression and 'output' to signal 'stability'. This, of course, pours cold water on those hoping for another huge stimulus plan to build more railroads (and the market's initial 3 point jump has already faded gloriously into the night).

Based on overwhelming demand, we present today's 6 minutes of comedy gold as Cramer and Liesman basked in the glory of a call that proved to be epically incorrect mere hours later. The superlatives were exponential as kudos flew like confetti - from "believing the markets are efficient" as an indication that Dow -122 (-75 from the FOMC) was 'incorrect' to "years of experience" telling Liesman that the market's algo-only reaction was wrong and that he knew what the market expected. The only voice of reason was one Amanda Drury who noted the bond market's less than sanguine reaction (for which she was chided that "bonds have a lot more at stake than stocks.") As we write, the Dow (futures) are 125 points below the FOMC level and 190 points below the almost-perfect top-tick timing at which this TV sensation hit. Grab the popcorn and view the accompanying chart for guidance...

Political activity related to reforming Fannie Mae and Freddie Mac has picked up over the last few months and additional legislative activity is expected this fall. As Goldman notes, while there is still substantial political disagreement, a loose consensus has begun to emerge on some issues. However, despite somewhat greater agreement on certain aspects of GSE reform, lawmakers still face a basic dilemma. Housing finance reform has languished in large part because of the disagreement over the appropriate federal role, as well as a concern that reform would ultimately lead to an increase in borrowing costs. Recent GSE reform proposals such as Corker-Warner appear to have attracted support by calling for high levels of private capital. However, such high levels of capital would require a return to investors, increasing borrowing costs. Overall, Goldman's expectation continues to be that GSE reform is unlikely to be enacted this year or next.

  Radiation Levels Will Concentrate in Pockets In Baja California and Other West Coast Locations

Barack Obama has been running around the country taking credit for an "economic recovery", but the truth is that things have not gotten better under Obama.  Compared to when he first took office, a smaller percentage of the working age population is employed, the quality of our jobs has declined substantially and the middle class has been absolutely shredded.  If we are really in the middle of an "economic recovery", why is the homeownership rate the lowest that it has been in 18 years?  Why has the number of Americans on food stamps increased by nearly 50 percent while Obama has been in the White House?  Why has the national debt gotten more than 6 trillion dollars larger during the Obama era?  Obama should not be "taking credit" for anything when it comes to the economy.  In fact, he should be deeply apologizing to the American people.

With Spanish unemployment surging, tax collection so low, and delinquent loans soaring (though understated due to shifts in the Sareb 'definition's which means an ~11% levels is more like ~14%), it is 'odd', as El Confidencial notes, that GDP has only modestly declined. The fact of the matter is - things do not add up and the following three charts highlight the dramatic divergences between official (government-supplied) data and synthetic (market-based) measures of activity in the construction, industrial, and services industries. Given these 'real' levels, El Confidencial suggests real Spanish GDP would be 21% lower than reported.

Even after seven years of writing macroeconomic analysis and bearing witness to astonishing displays of financial and political stupidity by more “skeptics” than we can count, it never ceases to amaze us the amount of blind faith average Americans place in the strength of the U.S. dollar. One could explain in vast categorical detail the history of fiat currencies, the inevitable destruction caused by inflationary printing and the conundrum caused when any country decides to monetize its own debt just to stay afloat - often, to no avail. The dollar is no more invincible than any other fiat currency in history. In some ways, it is actually far weaker than any that came before. The dollar is entirely reliant on its own world reserve status in order to hold its value on the global market.

The unintended consequences of Obamacare are coming thick and fast (and not just from tin-foil-hat-wearing blogs, mainstream media, or political party ignorance). This time it is UPS, who announced that due to the higher costs under Obamacare will drop 15,000 spouses from its health insurance plan. As CNN reports, an internal document obtained by Kaiser Health News said the policy will apply to non-union US workers (saving what is expected to be a $60 million rise in costs). More 'anecdotal evidence'... UPS justified its move by saying that 35% of companies intend to do the same thing...

The truth behind the saying "never let a crisis go to waste" transcends both time and space, and it most certainly has no problem crossing the border into India, which over the past weeks has found itself in full monetary crisis, and whose currency is plunging to fresh record lows on a daily basis forcing its central bank to scramble with both tightening and QE at the same time. And if the influential Hindu Business Line, is correct, India's crisis is about to become someone's opportunity. Potentially for that someone which over the past two months has found themselves in a huge physical gold shortage as the now constantly negative GOFO rates confirm. Because according to Royal Bank of India sources cited by the HBL, India is now considering leasing out the 200 tonnes of gold it bought from the International Monetary Fund in 2009.

While we found it modestly comedic (and certainly ironic) that CNBC's crack team celebrated the recovery from the initial knee-jerk drop in stocks after the FOMC by top-ticking that suspension of reality; we suspect the following post-mortem from Goldman on the minutes is what confirmed concerns across the street... "Minutes from the July 30-31 FOMC meeting were generally consistent with our view that tapering of asset purchases is likely to occur at the September meeting, coincident with an enhancement of the forward guidance."