Archive - Aug 2013

While we have previously exposed the less than exuberant perspective of many Egyptians towards the US, it now seems the torrent of anti-US hostility has reached such large proportions that the mainstream media is forced to admit report it. As the WSJ reports, a headline in a major Egyptian state newspaper this week referred to the proposed U.S. envoy to Egypt as the "Ambassador of Death." Posters in Cairo's Tahrir Square, a center of pro-government rallies, depict President Barack Obama with a beard and turban, exclaiming his "support for terrorism." The moves, WSJ adds, highlight the depth of public distrust of U.S. policies, and draw from a "reservoir of anti-Americanism and conspiratorial theories". Of course, after yesterday's revelation of the staged Muslim Brotherhood riots, nobody really knows just where US-Egyptian sentiment really lays but it seems fair to say that it is not improving.

After BTFATH in June, and being rotated into by the professionals in early July, it would appear that the apparent 'greater fools' are heading for the exits now. As we noted here, the 'retail' buyer of what the institutions were selling suggested things were getting a little too exuberant but as TD Ameritrade's Investor Movement Index shows that the retail investor is now a net seller of equities. Their proprietary index is now at its lowest level for 2013 and the last few days in stocks suggest the institutional sellers have run out of willing 'at any cost' great rotating equity buying 'greater-fools' (despite the mainstream media's call for moar BTFATH). Between Monday's record-breaking 'quote spam' and the JPY carry unwind occurring, we await the next call for Mr. Bernanke (or Kuroda) to get back to work.

Back in May 2011, together with forecasting Japan's most epic case of quantitative easing ever unleashed, we presented the absurd, if inevitable, thought experiment of a country that would soon cross into the twilight zone of total sovereign debt numbers that no longer even fit on a simple pocket calculator. The country of course is Japan, and the debt number is one quadrillion. As of last night, the absurd has become real as Japan has officially announced its total government debt rose by 1.7% to ¥1,008,600,000,000,000.00.

• JPMorgan Nears Settlement With SEC on London Whale Loss (BBG)
• Without even a wristslap: Iksil to face no U.S. charges in 'Whale' probe (Reuters)
• China’s Credit Expansion Slows as Li Curbs Shadow Banking (BBG)
• China slowdown shows signs of abating (FT), even as...
• Australia central bank Lowers Growth Outlook as Economy Transitions From Mining (BBG)
• SAC Business Plan Goes to Judge, Plan Would Allow Firm to Maintain Business Operations but Restrict Its Ability to Move Assets (WSJ)
• Another buyer of Herbalife? - Norway’s oil fund plans to turn active (FT)
• Mark Carney plays down scepticism over interest rate policy (FT)
• Orders Evaporate for Celebrity Perfumes (WSJ)

The good, if fake, Chinese "data" releases continued for a second day in row, dominating the overnight headlines with a barrage that included CPI, PPI, retail sales, industrial production, fixed investment, money growth, car sales, and much more (summary recap below). Needless to say, all the data was just "good enough" or better than expected. Yet judging by both the Chinese market (which is barely up, following the drop on yesterday's "surge" in made up trade data) and the US futures, not even algos are dumb enough to fall for the goalseek function in China_economy.xls. Either that, or traders are taking the "rebound" in the Chinese economy as a further indication that the Taper (which will  take place in September), will take place in September. And since global risk sentiment continues to be driven by the USDJPY, the Yen pushing to overnight highs is not helping the "China is bullish" narrative.

When it was suggested it was considered in the blazing battles of the bail-outs and the scraping of the bottom of the drawers for extra cash as the God-sent answer to all EU woes and worries.

There’s an interesting trend happening in America today. A trend characterized by old, authoritarian, formerly “highly respected” figures in society becoming so confused and concerned that the zeitgeist of the nation is moving away from them, that they are overcome by dementia and publicly lash out like spoiled children in increasingly irrational manner. Two of our favorite examples of such behavior are Senator John McCain and NYC Mayor Michael Bloomberg. Now we can add another character to the list, former CIA and NSA head Michael Hayden. Amongst other things, here is what he said about Snowden supporters: Nihilists, anarchists, activists, Lulzsec, Anonymous, twenty-somethings who haven’t talked to the opposite sex in five or six years.

The US Federal Reserve read somewhere that if people 'feel' wealthier, they'll borrow and spend more. Simple enough, all they had to do was to make people feel wealthier and when it comes to wealth in America, there’s no better barometer than the stock market. One can see that as the Federal Reserve printed more and more money, the stock market increased more and more as well. This made Ben Bernanke a happy man. Yes, Americans are now wealthier and now all the world has to do is wait for them to start their borrowing and spending engines. Except this hasn’t happened. It’s our view that as economic, political and social lives experience very little progress, governments and central banks will not only continue with their same failing policies, but they will actually implement more of these same failing policies.

With incomes stagnating in the US, French unemployment at record highs, and prices surging on premium and non-premium alcohol, the following headline is only in fitting with our series of 'wealth effect' data points:

France's Champagne Production Set To Rise 56% This Year

Of course, this is a projection from the always reliable French statistics agency, that as France24 notes, may forgotten to note the devastation caused throughout Bordeaux and Burgundy in July by an unseasonal hail storm. Still, there's always hope.

The following eight secular disruptive themes are what Goldman Sachs believe have the potential to reshape their categories and command greater investor attention in the coming years. Critically Goldman focuses on the impact of creative destruction - a term coined by the economist Joseph Schumpeter, which emphasized the fact that innovation constantly drives breeding of new leaders and replacement of the old. These eight themes - through product or business innovation - are poised to transform addressable markets or open up entirely new ones, offering growth insulated from the broader macro environment and creating value for their stakeholders.

The Russian Bear is stronger and more powerful than it has ever been before.  Sadly, most Americans don't understand this.  They still think of Russia as an "ex-superpower" that was rendered almost irrelevant when the Cold War ended.  And yes, when the Cold War ended Russia was in rough shape. Today, Russia is an economic powerhouse that is blessed with an abundance of natural resources.  Their debt to GDP ratio is extremely small, they actually run a trade surplus every year, and they have the second most powerful military on the entire planet.  Anyone that underestimates Russia at this point is making a huge mistake.  The Russian Bear is back, and today it is a more formidable adversary than it ever was at any point during the Cold War. Just check out the following statistics...

In a little under 90 seconds, the venerable "Gloom, Boom, and Doom"er draws a number of eery similarities between the fundamental and technical backdrop before 1987's equity market collapse and the current environment. With the 3rd Hindenburg Omen in 4 days suggesting anxiety is high, maybe he is on to something.

As David Stockman, Reagan's infamous Budget Director, writes in his bestseller, The Great Deformation: The Corruption Of Capitalism In America – "the last thing hedge funds do is hedge."  The hedge fund complex is "not so much a conventional industry as it is a giant moveable trade": Wall Street trading desks frequently morph into independent hedge fund partnerships, and senior hedge funds often sire “cubs” and then sons of cubs. The protean ability of this arrangement to spawn, fund, and replicate successful momentum trades cannot be overstated, and has "generated trillions of permanent momentum-chasing capital." Ultimately, he warns, "apologists for the Fed’s evisceration of the capital markets could not see... they had unleashed the financial furies in the violent momentum trading modus operandi of the hedge fund casino."

Traditionally, metals markets are supposed to be a solid fundamental signal of the physical and psychological health of our overall economy. Steady but uneventful commodities trade meant a generally healthy industrial base and consumption base. An extreme devaluation was a signal of deflation in consumer demand and a flight to currencies. Extreme price hikes meant a flight from normal assets and currencies in the wake of possible hyperinflation. This is how gold and silver markets were originally designed to function – however, welcome you to the wacky world of 2013, where bad financial news is met with the cheers of investors who believe stimulus will last forever, where foreign investors dump the U.S. dollar in bilateral trade while mainstream dupes argue that the Greenback is invincible, and where everyone and their uncle seems to be buying precious metals yet the official market value continues to plunge. The reason our entire fiscal system now operates in a backwards manner is due to one simple truth - every major indicator of our economy today is manipulated by our central bank...

The JGB market was completely unfazed by the news that the prime minister’s office was reconsidering the planned consumption tax hike. While the tax hike is unlikely to be changed; in BNP's view, the market’s lack of response to tail risk looks like proof that its function has been impaired by the BoJ’s massive buying. Even if the Abe regime is opting for financial repression to reduce the public debt, however, BNP warns that some degree of fiscal reform is needed to control the long-term interest rate. If the unfazed market is deemed to mean that fiscal reforms can be shelved without fear of a bond-yield spike as long as massive BoJ buying continues, serious problems could ensue.