Archive - Aug 29, 2013

The market is rallying today on August performance gaming. The talking heads will claim this move has something to do with fundamentals, but the reality is that the move up yesterday and today consists of fund managers doing whatever they can to end this month with their holdings as high as possible. Nothing else.

Weakness in German unemployment data was shrugged off as JPY-carry provided the same post US-open lift that US stocks had to move European equities into the green on the day, breaking a 3-day losing streak. EURUSD is down 120 pips from the open of the EU session - its largest plunge in over 4 months as 1.32 looks set to be tested once again. European sovereign bonds traded in a narrow range but rallied modestly on the US open. Once again, it seems, it is all one trade for now...

Forget Gross Domestic Product (GDP) as a measure of expansion ("growth") or recession - what really matters is the social recession, which continues to deepen in America. The term social recession has two distinct meanings: around 2000, the term was used to describe the erosion of social cohesion via the decline of institutions such as marriage and the rise of social problems such as teen pregnancy. We use the term social recession to describe a very different phenomenon, the social and cultural consequences of permanently recessionary economies such as Japan, and now Europe and the U.S.

Sometimes you have to just sit back and laugh and how Mr. Market (and the visible hand of carry-funded exuberance) spreads its fingers of influence through asset-classes... This morning's equity, bond, precious (and base) metal, and FX price moves are worth a glance...

“…  gold is the hard currency of choice, and we expect for this trend to accelerate going forward. We still believe that in the next couple of years we will be looking at a gold price of around $US3,500. As the gold/silver ratio plummets near 30, this would also suggest a silver price above $US100.”

"The emerging markets "story" has once again been exposed as a pyramid of piffle. The EM edifice has come crashing down as their underlying balance of payments weaknesses have been exposed first by the yen’s slide and then by the threat of Fed tightening. China has flipflopped from berating Bernanke for too much QE in 2010 to warning about the negative impact of tapering on emerging markets! It is a mystery to me why anyone, apart from the activists that seem to inhabit western central banks, thinks QE could be the solution to the problems of the global economy. But in temporarily papering over the cracks, they have allowed those cracks to become immeasurably deep crevasses. At the risk of being called a crackpot again, I repeat my forecasts of 450 for the S&P, sub-1% US 10y yields and gold above $10,000."

U.S. and British Intelligence Officials Admit they Don’t Know Whether the Syrian Government Or Rebels Used Chemical Weapons

The Fed's GDP forecasts are still too optimisitc even after the Q2 GDP revisions.  And the core PCE deflator is closer to zero than it is to the Fed's target.  Tapering still a done deal ? 

As global financial markets hang on every headline, statement, and rumor emanating from the Middle-East, residents of Damascus try their best to proceed with life as usual. This brief clip from AFP sums it up perfectly as one resident notes, "we've been under mortar attack for years... why should we be afraid? Mortars or Missiles, what's the difference?" Interesting context for the 'Miley-Cyrus'-obsessed American public...

Even as the Indian capital outflows and current account exodus may be threatening to shut down the economy altogether (except for the three oil companies that received a last ditch USD infusion from the RBI yesterday), the central bank is planning and strategizing. And it appears to have come up with more of precisely the same that has led it to its current unprecedented predicament: prevent the population from converting their wealth into hard money, i.e., gold. But while the government's attempts to impose capital controls on gold purchases have been well documented, the latest foray is just a headspinner. Reuters reports that India is now considering a "radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some heat off the plunging currency." Here we can safely assume that the commercial banks will pay for the gold in... Rupees which just hit an all time low?

The first public 'discussion' and not just a stream of teleprompter-driven talking points since the crisis came to a head...

Nearly 2,400 years ago, Aristotle wrote one of the defining works of political philosophy in a book entitled Politics. It’s still incredibly relevant today, particularly what he writes about tyranny. The ancient Greeks used the word ‘turannos’, which referred to an illegitimate ruler who governs without regard for the law or interests of the people, often through violent and coercive means. Aristotle attacks tyrants mercilessly in his book, and clearly spells out the criteria which make a leader tyrannical. You may recognize a few of them...

Research In Motion BlackBerry may have to rename itself again. Or Thorstein Heins will have to do a Vogue cover spread. Or the company will have to take a page from the Amazon playbook and revel in its losses (with the help of a few DE Shaw algos of course). Or, worst case, Carl iCahn will have to tweet that his breakfast plans include checking his email on a BlackBerry. Because operationally the company is set to become the functional equivalent of JCP, especially following the latest news from the WSJ that sales of the company's Hail Mary product, the keyboard-equipped Q10, have been "dismal."

Mere days after the CFO of Zurich Insurance, Pierre Wauthier, was found dead (of suspected suicide) at his home in Zurich, the WSJ reports that CEO Josef Ackerman has abrutly resigned. Just 18 months after his appointment at Zurich (after leaving Deutsche Bank's top position), Ackerman's sudden resignation appears based on his view that the late CFO's family felt he had some responsibility for the death. Following a dismal 7% drop in Q1 profits and having struggled in a low-rate environment since Ackerman took the reins, the reasons for the CFO's suicide are not apparent but a statement from Ackerman oddly commented, "I have reasons to believe the family is of the opinion that I should take my share of responsibility."

On the surface, the just printed revised Q2 GDP number was great: following a preliminary print of 1.7%, the just revised number of 2.5% (beating expectations of 2.2%), up from 1.1% in Q1, should make everyone happy (well not the market which desperately need bad news to go higher). However, as usual, the real news is underneath the surface, which is where we find that both real components of GDP growth, Personal Consumption and Fixed Investment were actually revised lower from the preliminary print. Specifically, Personal Consumption as a contributor of the 2.5% final number was revised from 1.22% to 1.21% (well below the average Personal Consumption number since 2010 of 1.58%), while Fixed Investment was revised from 0.93% to 0.90%. So where did the 0.8% upside come from? It came entire from net trade, which contributed precisely 0.8%. Imports were revised from detracting 1.51% from GDP to just -1.11%, while exports added not 0.71% as previously expected but 1.11%, thus changing the net trade contribution from -0.80% to 0.00%. The remaining two components, Inventories and Government Consumption, were a wash, with one adding 0.2% while the other subtracted 0.1% from the preliminary number.