Archive - Aug 2013

The U.S. is "extremely disappointed" in the move by Russia to grant 'temporary asylum' to Edward Snowden, White House spokesman Jay Carney told reporters this morning. Carney appeared to add a threat, as the WSJ reports, he added that the Russian decision undermines law-enforcement cooperation between Moscow and Washington. Russia's decision also threatens to derail a planned September summit in Moscow between Obama and Putin (oh to be a fly on that wall), as Carney advised "we are evaluating the utility of a summit in light of this." Snowden's earlier comments that "over the past eight weeks we have seen the Obama administration show no respect for international or domestic law, but in the end the law is winning," did not help, adding that he thanks "the Russian Federation for granting  asylum in accordance with its laws and international obligations." US politicians see it a little differently, U.S. Sen. John McCain (R-A.Z.) called the move "a disgrace and a deliberate effort to embarrass the United States." Seems they are managing that all on their own.

In what is a relatively surprising headline, the Italian court has decided to uphold Berlusconi's Mediaset Tax fraud conviction... but appears to have left the door open for some more fun and games...

• *COURT CONFIRMS BERLUSCONI CONVICTION
• Court confirms Berlusconi prison sentence (Reuters)
  

But, it would seem, we may just see him make a run at the PM spot once again (once he gets out of clink)...

• *ITALY COURT ORDERS REVIEW OF PUBLIC-OFFICE BAN FOR BERLUSCONI

Of course, his 'sex with an under-age person' trial remains...(along with its potential life-time ban)

The real wages of the typical working man in the US have gone down for the last 60 years. In terms of his time, his most important purchases are more expensive today than they were in 1950. How did American workers survive with lower real wages and higher living costs? First, they began to work longer hours. Wives went to work. Husbands worked a second job. Now Americans work more hours than any other group. Second, and most importantly from our point of view, they began to borrow. Aided, induced and bamboozled by the feds’ EZ credit policies... they went deep into debt to keep up with their own standards of living.

While vainly attempting to look like he is still in the driver's seat, it would appear that John Boehner has once again folded on fiscal conservancy. "It’s clear that we're not going to have the appropriations bills finished by Sept. 30," Boehner noted this morning, adding "I believe a continuing resolution for some short period of time would probably be in the nation’s interest." So it's for our own good - especially as the Fed is set to Taper - that we keep borrowing and spending. But, Boehner adds after seemingly kicking the can, "the idea of operating for an entire year under a CR is not a good way to do business. And I’ve been working try to find a way to actually do all of these appropriations bills." Indeed, get back to work, Mr. Boehner.

Presented with little comment aside to note that 'reaching for yield' may soon having an entirely different meaning...

All in all, the Eurozone has made two steps forward and one step back.

While much is being made of the ISM smash this morning and China's 'official' PMI overnight, it seems cognitive dissonance is on the rise as China's 'other' PMI collapsed and US Construction Spending dropped precipitously. It was only a month ago that ISM was sub-50 and that housing (and construction spending) was set to lift us out of the growth-scare. Apparently not. But there is another pillar of this recovery that has been stalwart during the equity market rally - that of US auto sales... until now...

*FORD U.S. VEHICLE SALES UP 11%, EST. UP 17%
*GM JULY U.S. VEHICLE SALES RISE 16%, EST. UP 20%
*CHRYSLER JULY U.S. VEHICLE SALES UP 11%, EST. UP 16%

It seems that all that channel-stuffing, subprime-lending, term-extending has hit its peak as, despite smiles and being 'pleased', US auto companies are underperforming expectations (as Ferrari exceeds).

Edward Snowden's first taste of fresh Russian air in weeks...

Those who follow the mainstream media’s “all Federal Reserve, all the time” coverage of financial news naturally conclude that Senator Chuck Schumer neatly summarized reality last year when he declared that the Federal Reserve “is the only game in town.” This lemming-like belief in the power of the Federal Reserve generates its own psychological force field, of course; the actual power of the Fed is superseded by the belief in its power.  The widespread belief in the Fed’s omnipotence is the source of the Fed’s power to move markets. We can thus anticipate widespread disbelief at the discovery that the Fed is either irrelevant or an impediment to the non-asset-bubble parts of the economy. There is much we, as individuals, can do to ignore the Emperor's clothes (or lack thereof) and focus on how to pursue our own prosperity and happiness irrespective of the meddling of central planners. The real power is in our hands, should we choose to believe it.

Record-breaking temperatures have been searing large swaths of China, resulting in dozens of heat-related deaths and prompting authorities to issue a national alert. As CNN reports, people are packing into swimming pools or taking refuge in caves in their attempts to escape the fierce temperatures. Local governments are resorting to cloud-seeding technology to try to bring rain to millions of acres of parched farmland. The worst of the smoldering heat wave has been concentrated in the south and east of the country, with Shanghai experiencing its hottest July in at least 140 years. In Shanghai, the heat was being blamed for mounting numbers of dead fish in ponds and rivers and is likely to continue into the middle of August.

*FERRARI SAYS 1H NET INCOME RISES 20%

*PORSCHE JULY U.S. SALES UP 36%

Readers may recall that in our commentary to yesterday's Chicago PMI disappointment we had a simple prediction "What this means for the ISM is not exactly clear due to the long-running tradition of baffle with BS, but on the surface it is hardly optimistic... which likely means ISM will explode higher." Sure enough, to no surprise at all, it just did with the headline ISM manufacturing print for July exploding from 50.9, trouncing expectations of 52.0 with the biggest beat in two years, and hitting 55.4, driven mostly by a surge in production which rose from 53.4 to a ridiculous 65.0, the highest since 2004. And while virtually all of the key subindices in yesterday's Chicago PMI dipped, today it is the opposite, with New Orders (+6.4), Employment (+5.7) and Deliveries (+2.1) all posting increases. Humorously, while Chicago PMI said Prices Paid exploded, today the ISM refuted that and indicated Prices Paid dropped to lowest in a year. One just has to laugh at the Chinazation of US economic data.

Two months ago we first observed the scramble by various hedge funds, in this case Blue Mountain, to take advantage of the peak sentiment in housing, and specifically rental housing (which just hit an all time high as reported previously) by rushing to capitalize on recent investments and dump exposure to the witless public. Specifically, we envisioned the then just announced IPO of the aptly named American Homes 4 Rent (yes, with a "4" not "for"), also known as AMH, which however came at precisely the wrong time for the market: just as mortgage rates were soaring and Colony American Homes postponed its own parallel IPO. Two months later, with the market about to pass 1700 and fears about the housing market put back in the shelf despite a glaringly obvious collapse in mortgage demand, these IPOs are back and with a vengeance, although now reflecting a far more subdued, tapered if you will, view about the house leasing sector. Not surprisingly, AMH priced overnight, selling 44.1 million shares at a price at the bottom of the $16-18 range to raise a total of $706 million: a 44% discount to the $1.25 billion suggested in the prospectus filed back in June.

After spending the last two weeks in a 20 point range, the S&P 500 has finally passed the all-important 1,700 level after the Fed's directionless statement was trumped by Hilsenrath's confirmation that the Taper 'may' be delayed and the late-day collapse in stocks was trumped by a 'miracle' from China and this morning's promises from Draghi. After its initial spurt off the 6/24 un-taper lows, the S&P surged at a wonderful 200% annualized pace but the sideways oscillation of the last few days has dragged that extrapolated performance exuberance down to a mere 140% annualized. As a reminder, there is a buyer (retail) for every seller (professional); what could possibly go wrong? It seems 'on hold' is the new BTFATH (and sell bonds).

I saw your boobs!