Archive - Aug 7, 2013

Overnight equity markets are getting a lift from headline-making beats for Chinese exports and (more importantly) imports. A 10.9% YoY rise in imports (compared to a +1.0% expectation) and a surge in copper 'demand' has the media calling the turn on the global economy (even as China's trade balance at $17.82bn missed expectations of $26.9bn by the most in 4 months and for the second month in a row). But... one glance below the surface of this 5.5 Sigma beat for imports and the other absurdities discrepancies are glaring...

Much of the distress in America’s cities is linked to regional developments, as shown by the unemployment data in this post. Population loss is a particular factor for the Northeast and Midwest, while public pension shortfalls may be the biggest challenge for cities everywhere. But what about politics? Does ideology play a role?

Earlier we reported that in an act of embarassing political ineptitude not to mention detente reminiscent of the Cold War's worst days, the US president did his best Freudian transferrance attempt today by blaming Putin for his ever escalating headaches caused by one 30 year old NSA whistleblower, and cancelling bilateral talks with the Russian president. And can anyone blame him: with the US increasingly slighted by both superascedent eastern powers, Russia and China, the US finds itself in a position in which it has never been - where foreign nations get to simply say "no." Here is what else Russia is saying in the aftermath of Obama's childish response.

Everyone is welcome at the church fete in the small Greek village of Archanes in Iraklio. Everyone, that is, apart from the so-called 'Financial Crimes Squad'. The team of tax-inspectors entered the village in the light of day to conduct raids on businesses for tax code violations... the people were not happy. As ekathermini notes, the villagers heckled and threatened them with force if they did not leave the village. This is not the first time the government's enforcers have run afoul of the people; last year, inspectors were held captive by disgruntled locals... We are sure this is just a storm in a teacup and that the recovery is ticking along nicely in Greece - how else does one explain their surging bond and stock prices?

Even though the United States has the highest incarceration rate and the largest total prison population in the world by a very wide margin, hundreds of communities all over America are being overwhelmed by crime and violence.  For many years, violent crime had actually decreased in the United States, but now the trend is going the other way. The frightening thing is that crime statistics are going up even though police departments in some major cities have publicly announced that they will not even respond to certain crimes anymore. So what is causing the rise in crime and violence?  Well, we live at a time when economic opportunities for young people are extremely limited.  The younger you are, the more likely you are to be unemployed, and poverty in America has been steadily rising even in the midst of this so-called "economy recovery". When people are poor and feel like they are out of options, they tend to get desperate.  And desperate people do desperate things.

The New York metro region’s recovery from Superstorm Sandy is well under way. Spending on restoration and rebuilding activities following a natural disaster is a potentially powerful economic stimulus to the affected area. Indeed, money from outside the region - in the form of federal aid and private insurance payments - flowing to the damaged areas in the region gives a temporary boost to economic activity. But, in the latest NYFed-driven tax-payer-funded research study, the PhDs ask "does this mean that Sandy - along with the federal aid and insurance payouts associated with it - was actually good for the region’s economy?" All sounds very Krugmanesque, however, hidden deep in the study is the awful truth... "So while this [stimulus driven] economic activity may have been boosted from such spending, the region’s net wealth hasn’t changed."

It appears, as UBS' Stephane Deo notes, that in a rising rate environment, so-called risk-parity portfolios were susceptible to draw-down as yields 'gap' higher. As it turned out the 'equalization of risk across assets within the portfolio' failed dramatically after the Fed's June 19th FOMC statement which sent rates and stocks higher (and moreover rate volatility considerably higher) - the consequence for some risk parity funds was a significant loss. The question is whether this will happen again, or was this event a one-off? We believe this is a relatively mild foretaste of what is to come... as the 'speed limit' for rising bond yields is smashed.

What the Quebec tragedy demonstrates, says Banica, is that pipelines are a far better option than rail. “Whereas pipelines do not kill as many people as rail (or even truck transport, as more drivers die due to accidents), they do pose a bigger environmental risk than rail due to larger potential leaks and releases.” So the issue of pipeline leak detection will increasingly be on everyone’s radar. Most leaks are found eventually - but there is money to be saved and damage to be avoided by catching them at the smallest rupture. Right now, we rely on 'pigs' in the pipeline to do this, but there is new technology out there.

What happens when 63.5K ounces of registered gold in your warehouse (16% of total) just has their warrants detached and the vault is about to finds itself 63.5k ounces of gold emptier? If you are JPM you call the gold vault with most inventory in town, that of HSBC, and politely request that they transfer as much eligible gold as they can on short notice - in this case a tiny 6,444.936 oz to be exact. None of which changes the fact that in a few days, the inventory in JPM's gold vault will drop to another record low of only 380K ounces and the JPM "rescue" pleas from HSBC and other Comex members will become ever louder and more desperate until one day they may just go straight to voicemail.

There are still more than 3 million Americans who have been unemployed for more than 52 weeks and, as WSJ reports, economists (via recent studies) worry they will never work again. Of course, with benefits at such heights (and work punished), it is not surprising but on the demand side, for the long-term unemployed, interview "callback rates decrease dramatically at 9 months of unemployment." Worst still, for those applying for medium-to-low skilled jobs (so the majority), being long-term unemployed reduced interview requests by 20% - the equivalent of shaving four years of work experience off their resumes. Critically, one study found employers showed "a strong distaste for applicants with long spells of non-employment."

It’s long been a common approach for government sliding into insolvency to confiscate wealth from their own citizens. Charles I of England infamously commandeered 200,000 pounds of his own citizens’ gold right before the English Civil War in 1638. Roosevelt confiscated his entire nation’s gold holdings roughly three centuries later. And of course, Cyprus raided domestic bank accounts earlier this year in a desperate attempt to bail-in the national banking system. It’s foolish to think that these things cannot happen, especially when you look at the numbers. This is why we are concerned that the IRS is refusing to issue tax ID numbers for single-member LLCs that are owned by an IRA... which is the specific structure that US taxpayers need to create in order to ship their retirement savings overseas.

(a/k/a the shortest post in Zero Hedge history)

Because who really needs Generally Accepted Accounting Principles anyway...

"You can't go up forever," noted Bob Pisani before piling on a series of excuses for the recent 'weakness' that quite frankly could have been used at any 1.1% drop in stocks of the last 3 years... While stocks bounced off lows today and are making the headlines for a third down day for the first time in 2 months, the real story that most are ignoring is the surge in the JPY. The USD is legging lower confusing the 'Taper' chatter but it is the JPY strength that is dominating (up 3.6% against the USD in the last 4 days (and the Nikkei futures -800 from Friday's highs). Treasuries rallied 3-4bps (and the curve flattened) as it seems the modest weakness in stocks is being met with some safe-haven demand. Despite bonds' bid, Homebuilders were battered (-4.5% on the week). Gold and silver strengthened off pre-open lows as WTI fell back to around $104. VIX spiked to 13.9% at the open but ended around 13% at the close. Back to CNBC for the close: "off the lows," but not in credit Maria...

Has the long-awaited "kinetic strike" catalyst finally arrived?

#BreakingNews - Activists: #FSA downs Iranian cargo plane at #Damascus International Airport. #Syria

— Al Arabiya English (@AlArabiya_Eng) August 7, 2013