Archive - Sep 2013

The growth rate of employment is declining over time, as positive growth weakens and recessionary declines deepen. For all the reasons addressed here and many other sites over the years - offshoring, global competition, labor-replacing technologies, the perverse incentives of financialization, structural changes in the economy, etc. - there is no one simple way to boost full-time, higher-wage employment. If wages cannot easily be increased, the alternative approach is to dramatically lower the cost of living.

This is not an offer...

New SEC Chair May Jo White's motto "you have to be tough" and plans to toss out the SEC enforcement policy that allowed almost all defendants to settle cases without admitting wrongdoing sound great; but the reality is, as the WSJ reports, the policy shift comes as the SEC turns the page on its financial crisis work. New investigations into misconduct linked to the meltdown have slowed to a trickle. And a statute-of-limitations deadline that generally restricts the sanctions the SEC can get for conduct more than five years old is looming for many cases. The SEC's crisis-related actions are producing diminishing financial returns as the following charts suggest... As one law professor noted, "they've not had the big case that everybody wanted to see... a major player being held really accountable." Perhaps more reading and less porn would be a start?

We’ve confidentially submitted an S-1 to the SEC for a planned IPO. This Tweet does not constitute an offer of any securities for sale.

— Twitter (@twitter) September 12, 2013

For the right answer, we look to the past....

It started early this morning as Asia really went to bed - when gold markets were temporariliy halted. Someone decided that was the perfect time to sneak a few thousand contracts through the futures market (and clearly has no fiduciary duty to a client for best execution). As the US day-session opened, it was silver's turn totake a hiding (and gold less so that time); and then into the close, with both precious metals (and copper) heading towards their lows, Silver nose-dived (now -8% on the week) and its worst day in almost 3 months. Away from precious metals, Oil surged back over $109 as Syria chatter hotted up again (from Assad this time), the USD slid further (though ended flat on the day after an opening dump), and Treasuries shrugged off early gains to close red even as stocks closed lower (despite a late-day ramp effort) - breaking the streak and stunning a few TV anchors as VIX-slam and the 'short squeeze' seems over for now.

It will likely come as no surprise but the political one-up-manship continues as the Obama White House try to rescue themselves from a face-melting Putin Op-Ed... As Politico reports, WH press secretary Jay Carney stated: “If we were to see a situation unfold where Assad were to give up his chemical weapons to international supervision that would be an enormous accomplishment ... would be due to the decisions made by the Russian leadership but also the decisions made by the United States, by the president, to take the approach he has taken in response to the horrifying use of chemical weapons on his own people." Feeling the need to make one more jab at the Russians, Carney added, "The United States, in part because it is an exceptional nation, is called upon the lead in situations like this." Indeed, that's what it felt like eh? Under control the whole time...

In the summer of 1956, Egyptian president Gamal Abdel Nasser nationalized the Suez Canal, sparking a worldwide crisis. Britain was a major stakeholder in the canal, and almost immediately, the British government put together a small coalition consisting of the UK, France, and Israel to regain Western control. Their subsequent military action, however, greatly displeased the US government. And Uncle Sam quickly asserted its new role as the world’s superpower. But to anyone paying attention, this status has waned. Asia is rising. Major centers of wealth and power have grown around the world. US finances are desolate. And its currency is now widely reviled by foreign governments. But US politicians have completely ignored this trend over the last decade. They spend and act as if US global dominance is an endless river. With Syria, though, the US may have finally reached its Suez moment.

Moments ago the Treasury reported its deficit for the month of August, which was $148 billion, slightly less than the $150 billion expected. More importantly, it was over 22% less than the deficit from August 2012 when it was $191 billion. And that, in a nutshell, is the main reason why the Fed has no choice but to taper. What the chart below shows is the cumulative deficit of the US for fiscal 2012 and 2013. What becomes immediately obvious is that with the total deficit Year to Date of $755.3 billion running 35% below the $1,165 billion from a year ago, the Fed has far less room to monetize gross issuance.

As Angela Merkel prepares for her third term - in whatever odd coalition that lurches from the election - the following four charts may surprise many that believe in the core European nations' dominance uber alles. As Bloomberg's Niraj Shah notes, Merkel may find rebalancing the German economy, as its reliance on exports increases, harder than ever. The low levels of growth, high trade balances, excepotionally low consumption and homeownership, and growing "shadow" economy all point to a European core that is far from the beacon of stability so many assume it to be.

Guess what "stabilizing" event took place almost exactly one hundred years ago, in 1913.

We are sure this conversation went very well... and now the press conference (and Q&A hopefully)...

*U.S. `GRATEFUL' FOR RUSSIA PUTTING PLAN FORWARD, KERRY SAYS
*`WE DO BELIEVE THERE IS A WAY TO GET THIS DONE,' KERRY SAYS
*U.S. HAS PUT TOGETHER ITS OWN PROPOSALS, KERRY SAYS

While Spain is the European nation making all the headlines with regard its housing market collapse, Italy has quietly been experiencing its own decline. As Bloomberg notes, however, Italy shows no sign of stopping as falling prices may not be enough to stem a decline in Italian home purchases as the country's biggest group of buyers - those aged 30 to 40 - is set to shrink until the end of the decade. As the chart below indicates, housing transactions have followed the growth and contraction of this important 'buyers group' as it has plunged by more than 1 million people since 2005 (and is set to drop to only 8.3 million by 2020) and prices are set to follow. Of course, officials proclaim that prices have dropped enough to trigger a rise in purchases (for the first time since 2006); but, this runs counter to the more-than-decade-long demographic trend. But apart from that, Europe is recovering...

As if the "developed" world did not have enough things to worry about, moments ago VOA's Steve Herman reported that the radioactive problem in Japan, the country hosting the 2020 summer olympics, continues to deteriorate uncontrollably, and citing Jiji, said that Tepco revealed tritium levels in the Fukushima groundwater have just surged to a new high.

While hardly the spectacular 10 Year reopening from yesterday, today's 30 Years reopening of the RC4 Cusip concluded the weekly issuance with solid demand for today's $13 billion in long-end paper. Printing at a yield of 3.820%, the auction priced through the 1pm When Issued of 3.83%. Perhaps a reason for this is that the yield, like yesterday, was the highest since July 2011, and while the 2.40 Bid To Cover was below the TTM average of 2.51, it was a notable improvement from the deplorable 2.11 in August. The internals saw the Directs stepping up, just like yesterday, and taking down 20.6%, above the 13.8% average, leaving 37.7% for Indirects and 41.7% for Dealers  - hardly notable.