Archive - Sep 3, 2013

Equity markets across AsiaPac are once again a sea of crimson with India and Indonesia taking front of stage... but in divergent ways for a change. After slamming lower to new record lows (not surprising given the forwards weakness all day), speculation was rife that the RBI intervened in the Rupee and Indian stocks jumped exuberantly on the news (NIFTY +1.3%). But no such luck for Indonesia where the Jakarta Comp is -2%. Conversely (for now), Indonesia's Rupiah is relatively well bid (+1.28%) and the Rupee is still -0.6%. Elsewhere, the Philippines are being hit FX down and stocks -1.9% and even the larger equity markets of China, Australia, and Japan are red. US Treasuries are leaking higher in yield (10Y +2bps at 2.88%) and US equity futures are limping higher (now +1pt). Silver is pushing lower (-0.8%) while gold and Crude are only modestly lower.

Another Japanese nitemare...

A nation pushing toward war as a distraction from internal problems and political failures is as old as human civilization itself. It is a tried and true method for hanging on to positions of power and often ends up in massive displays of destruction, chaos and death. Sadly, we find ourselves on the precipice of such a moment right now. Not only did the U.S. government and intelligence agencies play key roles in Saddam’s far worse chemical weapons attacks in the 1980?s, but now we discover that the UK had approved sarin gas components for export to Syria as recently as last year! The sale was only blocked due to EU regulations.

Moments ago a powerful 6.5 quake struck the Izu Islands, 400 miles south of Tokyo, strong enough to be felt among the taller buildings of the Japanese capital. Luckily, there was no tsunami or any destructive aftermath, at least none publicly announced. None was needed, because the great earthquake of March 2011 and subsequent tsunami and nuclear catastrophe at Fukushima continue to do enough damage. Sadly, it is the gift that keeps on giving... gamma rays. Not to mention constant news of the deterioration from the disaster zone, now that the world's attention has once again refocused on the fallout zone which for over two years both the Japanese government and TEPCO lied was under control. It wasn't. And now that the lies are catching up with reality, the "shocking" facts are hitting fast and furious. To wit: it was only this past Saturday when we reported that the radiation levels at Fukushima had hit a post-explosion record of 1,800 millisieverts/hour. Today, three short days later we get an update, and a stunning deterioration of over 20%. Reuters reports, citing the Nuclear Regulation Authority, that readings just above the ground near a set of tanks at the Fukushima Daiichi plant showed the radiation had risen as high as 2,200 millisieverts (mSv). Both levels would be enough to kill an unprotected person within hours.

In a sense the markets are experiencing a "Vietnam Moment" where we all believed what we were told and we all accepted the official headlines until the day came when we found out we had been flimflammed and you know the results of that fiasco. We believe that the markets are quite close to a shift in psychology where people and institutions alike no longer blindly accept the stories as told.

"We don't want to go to war" - John Kerry

The first draft of the White House's war authorization legislation was leaked yesterday, signaling the opening round of the danse macabre, in which the bargaining and maneuvering over what Congress and the president both want -- war on Syria -- begins its public journey from conception to law. There will be fighting and sharp words along the way. Members will be coy and make impassioned speeches. It is all for show. It is important to make this clear to readers: The fight is not between whether the House and Senate will pass or reject the president's request for authorization to attack, but rather what kind of force authorization will ultimately be brought to the Floor for passage... and sure enough the headlines are starting with more drafts:

*OBAMA WANTS "TOO BROAD AUTHORITY'' IN SYRIA, TWO DEMOCRATS SAY

and Menendez/Corker propose a new US Senate resolution for authorizing use of military force in Syria setting a 60-day deadline, with one 30-day extension possible, while barring ground forces

Following last week's refusal to allow the US to use the nation as a launchpad for Syria strikes, Jordan has placed its air-force, one of the Arab world's strongest, on high alert in anticipation of "various possibilities." The show of strength captured in Al-Arabiya's special access to the Jordanian air-base shows F-16s and multiple Himars truck-mounted rocket-launchers. While Jordan, like so many nations, would prefer the political solution, it is prepared for any emergency.

Last week's 90%-down day and TRIN (market-breadth) above 2.0 provided the ammunition for an oversold bounce but as BofAML notes, there is plenty of resistance to limit upside. With 1658 as critical resistance (S&P 500 cash traded 1651 this morning), the following charts show the weight of evidence suggests deeper downside risk to the June lows around 1560.

Gallup, which every week polls thousands of adults to get an unadjusted, snapshot picture of who has a job, who has a part-time job and who has no job has released its latest weekly results which have some good and some bad news. Good for those who fear that the NFP print on Friday will be so bad Bernanke will have no choice to delay (or reduce) the taper; bad for the economy. Because at 8.5%, unemployment for the week ended September 1 is now near the highest levels it has been in one year, following a spike in mid-August that sent it all the way to 8.8%.

With the value of the rupee plunging to new lows, the current account deficit at an all-time high and inflation running at nearly a ten-percent annual clip, India is in serious economic trouble. Indeed many are beginning to wonder whether the country is edging toward a replay of the events in the summer of 1991. Back then, an acute balance of payments crisis forced New Delhi into the indignity of pawning its gold reserves in order to secure desperately needed international financing. At a small public event the other week, Duvvuri Subbarao, the outgoing head of the central bank conceded that policymakers rarely learn from their mistakes: "...in matters of economics and finance, history repeats itself, not because it is an inherent trait of history, but because we don’t learn from history and let the repeat occur."

The newspapers of the mainstream media across the Western world are jumping on the same bandwagon and making sure that the most used word this week is Syria followed closely by ‘bomb the b’stards’.

The stock market is on the line for the whole QE forever rally.

1:1 In the beginning, Ben Bernanke hath said, let there be liquidity.

...

1:6 And so each among them sayeth the following benediction: “May the Fed bless you and keep you; may the Fed extend its balance sheet to shine upon you; and may the Fed lift up asset prices and protect you from harm”

As usual, Gloom, Boom, and Doom's Marc Faber pulls no punches in this brief interview on CNBC's Futures Now. When asked what is the catalyst for the crash he expects in US equity markets (following crashes in various markets around the world), he shocks a stunned anchor looking at equity markets near all-time highs with some ugly truths - "interest rates are no longer a tail-wind, earnings growth is not there, and emerging economies are collapsing (so no global growth)." However, with asset allocators "swimming in the pool of liquidity" it is hard to say 'when' it will occur especially as money floods out of EM markets. Critically though, it is Syria (and the spillover) that has Faber most concerned; as he concludes that Western governments "meddling" is "going to be a disaster."