Archive - Aug 7, 2013

Every time real personal income goes negative, a recession occurs. Now that personal income is falling, a recession is baked in. The Big Lie of the "recovery" is that it is self-sustaining. Minus government transfers, the reality that the Fed and Federal government are simply enriching the top 1/10th of 1% with access to unlimited credit at zero interest is revealed.

In early May, when the first of the Hilsenrath "taper" leaks hit, we made a prediction that the correct time frame for the actual taper announcement by the Fed would be September. As a reminder back then this was a heretical suggestion with prevailing consensus expecting a 2014 taper or a December 2013 move at the earliest. Fast forward to today, when the September FOMC is the consensus date for a taper announcement. However, what is still debated is whether or not the taper is actually "priced in" to risk assets: some say this is what the bond swoon of June was for, even though equities have largely digested the bond move 100 bps wider,  and are just a fraction off their all time highs. Well, a few hours ago someone just decided that not only is the taper not priced in, but that there will be a substantial shock surrounding the September VIX bucket. And they put their money where their mouth is.

By well known PhDs...

So much for hopes that US consumers were loosening the purse strings and starting to "charge it." Moments ago we got the latest, June, consumer credit which was expected to increase $15 billion following the May revised $17.6 billion. More importantly, there was an expectation that following the surge in May revolving credit which rose by $6.4 billion or the second most in the past three years (only matched by the comparable pre-summer surge in 2012). Sadly, neither expectation was met: total consumer credit rose by "only" $13.8 billion, but more importantly, the revolving component posted a $2.7 billion decline. This also matched last year's pattern when June saw a major reduction of $2.8 billion. In other words, the only credit creation in the month of June was, once again, entirely for student and car loans, which rose by a whopping $16.5 billion - the most since February and the second highest increase since July 2011. So much for US consumers seeking to relever for discretionary purchases.

Following yesterday’s announcement that Amazon.com founder Jeffrey Bezos would be purchasing daily newspaper The Washington Post, sources confirmed today that Post associate editor and legendary investigative journalist Bob Woodward had already been repositioned at a new staff position in one of Amazon’s main warehouses just outside of Seattle... “The one thing I’ll give him is that he does seem very curious,” Griffin added. “I mean, he’s always asking questions and he has a little notepad and a tape recorder out at all times, so hopefully he picks something up from all that.”

Ouch. 

For many years before 2007-9 a few analysts have warned that rising consumer credit in the US and peripheral Europe was unsustainable. They warned that rising debt to support misallocated investment in China was also unsustainable. They warned that soaring US mortgages backed by little more than the hope that land prices could only rise would lead to a real estate crisis. They warned that commodity-exporting countries that did not hedge their bets would find themselves in serious trouble when commodity prices collapsed. Of course you could not have had a bubble unless the majority of analysts disagreed with these warnings, and most analysts did indeed disagree. So what happened when the warnings turned out to be right? The former bulls immediately trotted out the stopped-clock analogy. The reason the worriers turned out to be right, they earnestly explained, is that they are perma-bears, and as everyone knows a stopped clock will always be right twice a day... As China’s growth continues to slow and as its debt problems become obvious to even the most bullish, the stopped clock analogy is working overtime.

Just when you thought it was safe to travel the world and spend time in a consulate overseas...

• U.S. HAS ELIMINATED 'ALMOST ALL' AL-QAEDA LEADERS IN PAKISTAN

... the State Department spokesperson Jen Psaki reminds us:

• 'WE DO THINK A THREAT STILL REMAINS' FROM AL-QAEDA: PSAKI

So be afraid, maybe slightly less afraid, "but keep funding us too"...

• U.S. STILL CONCERNED ABOUT AL-QAEDA AFFILIATES

because, after all there are many other countries in the world where Al-Qaeda brass is hiding and where US drones haven't murdered thousands of women and children in their quest to "eliminate" whatever threat du jour the US makes up.

If we can judge by the announcement from the Obama administration, the relations between the US and Russia are at their lowest ebb for decades and they couldn’t get much colder.

The sharpening international geopolitical competition over natural resources has turned some strategic resources into engines of power struggle. Transnational water resources have become an especially active source of competition and conflict, triggering a dam-building race and prompting growing calls for the United Nations to recognize water as a key security concern. With the era of cheap, bountiful water having been replaced by increasing supply and quality constraints, many investors are beginning to view water as the new oil. Political and economic water wars are already being waged in several regions, reflected in dam construction on international rivers and coercive diplomacy or other means to prevent such works. The World Bank estimates that such constraints are costing China 2.3% of GDP. In short, we must focus on addressing our water-supply problems as if our lives depended on it. In fact, they do.

If it was the Treasury's intent to make auctioning of Treasury paper increasingly more fraught with risk, it has succeeded. Moments ago, in the second auction of the week and month, another $24 billion were added to the gross US debt, when the Treasury sold 10 year paper at a yield of 2.620%, pricing through the When Issued yield of 2.623% So far so good. However, as was shown last week, the trouble is in the internals. Recall that as Zero hedge first demonstrated in January and as the TBAC reconfirmed in their refunding presentation, the Bid to Covers have been declining across the curve. It should perhaps come as no surprise then that the just completed 10 Year auction was completed at the lowest Bid To Cover, or 2.44, going all the way back to March 2009.

Foreign companies react; at the expense of already revenue-challenged US tech companies

Following yesterday's soundbite-generating speech, President Obama will continue his 'victory lap' over housing. In a social-media event (#AskObamaHousing), Obama will join the CEO of Zillow to answer all your housing questions. From "which market do I buy/invest in to make the most money in the next 3 months flipping dat house?" to "how will my new rent-backed-securities hold their value if you cap rates?", and from "Isn't Eminent Domain just another wealth transfer plan from a large diversified group of investors to a small of group of people?" to "have you got naked pictures of Larry Summers to ensure that he instantly un-Tapers upon appointment and smashes rates back down?", we cant wait to hear the public's questions... especially as homeownership plunges to 18 year lows and rent costs surge, the 'recovery' is stalling as hedgies flee, and affordability retreats dramatically. With Zillow's dismal earnings it seems they need Obama as much as he needs housing hope...

There was a time when wealthy foreigners would frequently travel all the way to these United States in order to receive top notch medical attention. Fast forward a decade or two, and all we hear about now is how it is us Americans being forced abroad in order to receive affordable care. From a hip and knee implant cartel of five companies, kickbacks to surgeons, salespeople in the operating room, massive bureaucratic red tape and rampant price gouging, in complete contrast to the Hippocratic Oath; it is perhaps no surprise that "the list price of a total hip implant increased nearly 300 percent from 1998 to 2011."

Japan’s Nuclear Accident Response Director Warns that Tepco’s Actions Might Cause Reactor BuIldings to Collapse