Archive - Sep 2013

If there’s one country in the world that you might not think would be at the top of the outsourcing list and the place to send orders to be fulfilled from the West, it would probably have to be North Korea. The world’s most closed economy, that Communist dictatorship.

USDJPY has been sliding (JPY strength) the last few days even as US equites have pushed higher. Carry-fueled exuberance has been replaced by short-squeeze and VIX (hedge) unwinds as ammo but yesterday saw VIX converge and shorts underperformance at extremes. The performance so far this moring has been weak for stocks. Very low volume is rising as we fade lower and retrace the entire late-day ramp idiocy of yesterday. USDJPY at 99.00 seems the line in the sand and with WTI pushing higher (back above $109) as Syria grows louder and more emboldened is not helping.

In the wake of President Barack Obama's change of tack from a strike on Syria, the threat of war has not dissolved (and is growing louder with Syria's seeming rebuffs this morning). The idea that this imbroglio will somehow disappear is certainly one that Obama is considering. But the Russians will not want that to happen. They do not want to let Obama off the hook and their view is that he will not act. Against this backdrop, they can appear to be the nemesis of the United States, its equal in power and its superior in cunning and diplomacy. This is the game to watch. It is not ending but still very much evolving.

Investors need to stop listening to the happy talk coming from the economists, and start focusing on what banks and other lenders are saying and doing operationally to adjust for the mortgage market of 2014 and beyond.  

Ex-ECB insider Lorenzo Bini-Smaghi has once again proved that conspiracy 'theory' in the new normal is the same a conspiracy 'fact'. As The Telegraph's Ambrose Evans-Pritchard notes, Bini-Smaghi's new book details Silvio Berlusconi seriously floated plans to pull Italy out of the euro in October/November 2011, precipitating his immediate removal from office and decapitation by EMU policy gendarmes. Specifically, he discussed (threatened?) Italian withdrawal from the euro in private meetings with other EMU governments, presumably with Chancellor Angela Merkel and France's Nicolas Sarkozy. Bini-0Smaghi's tell-all goes further, noting that Merkel continued to think that Greece could be thrown out of the euro safely as late as the early autumn of 2012. It appears - just as we have always believed - that all is not well under the surface in Europe and that Dragji is in charge.

It was only a matter of time before Syria's Assad, emboldened by Obama's recent backtracking and confident he has all the leverage and momentum, started laying down his own conditions. And here they are, as per RIA and Interfax citing an interview with Assad to air in its entirety later today on Rossia 24 TV:

• ASSAD CALLS FOR ISRAEL TO DISPOSE OF WMD (!)
• ASSAD: 'REBELS MAY USE CHEMICAL WEAPONS AGAINST ISRAEL AS PROVOCATION'
• ASSAD SAYS CHEMCIAL ARMS DEAL DEPENDS ON US STOPPING AID TO TERRORISTS
• ASSAD ACCUSES TURKEY, SAUDI ARABIA, QATAR OF SUPPORTING TERRORISTS IN SYRIA
• ASSAD: 'REBELS MAY USE CHEMICAL WEAPONS AGAINST ISRAEL AS PROVOCATION - ASSAD'
• ASSAD SAYS WILL COMPLETE DEAL ONLY IF US STOPS "POLICY OF THREATS"
• ASSAD SAYS IMPLEMENTATION OF DEAL MAY TAKE A MONTH OR MORE

If at all. And now, his bluff called, we go back to Barack Obama penning his Pravda Op-Ed.

In a world some thought we would never see, most Americans and much of Congress seem to agree with Ron Paul's foreign policy advice - at least on the question of a military strike against Syria...

With everyone focused on the 5th anniversary of the Lehman failure, we are taking a quick look at how the world's developed (G7) nations have fared since 2008, and just what the cost to restore "stability" has been. In a nutshell: the G7 have added around $18tn of consolidated debt to a record $140 trillion, relative to only $1tn of nominal GDP activity and nearly $5tn of G7 central bank balance sheet expansion (Fed+BoJ+BoE+ECB). In other words, over the past five years in the developed world, it took $18 dollars of debt (of which 28% was provided by central banks) to generate $1 of growth. For all talk of "deleveraging" G7 consolidated debt has been at a record high 440% for the past four years. So in the G7, which is a good proxy for the developed world, debt continues to increase whilst nominal growth remains extremely low thus ensuring that the deleveraging process has yet to start. As Deutsche Bank states, "at best we’re stabilising the ratio at or around record highs."

With US equity markets on a 7-day roll and excited TV anchors proclaiming the worst over and new all-time highs must signal recovery as they 'celebrate' five years on from Lehman, the following two charts of the state of real America should open a few eyes to just how blinded American has become to the truth (unless you live it). A stunning 20.0% of Americans were found to have struggled to afford food in the last year - surging in recent months to its highest since the peak of the crisis in 2008 - as American's ability to consistently afford food has not recovered to pre-recession levels. Furthermore, Americans access to basic needs (13 factors including housing, healthcare, and food) hovers near record lows - dramatically lower than pre-recession levels. The Gallup polls point to a very different image of American than Dow 15,000 - and is set to get worse as the food stamp program is set to be cut in November.

As opposed to the "pixie dust tout of fairy tales forever" that is trotted out by the herd every day, the fllowing brief look at Taper realities, 'manufactured' numbers unreality, systemic Muni bonds concerns, and of course, political risk provide color for what was described this morning on CNBC as a market bereft of 'bear market theses. As Tartakower once wrote, "The winner of the game is the player who makes the next-to-last mistake;" until then ts all foreplay.

Gold prices fell sharply again just prior to European markets opening, in aggressive selling which saw gold quickly fall from $1,355/oz to $1,343/oz at 0754 GMT. Support at $1,360/oz was breached overnight and gold should now test support at $1,320/oz.

Speaking on Russian TV, President Bashar al-Assad has - perhaps unsurprisingly - proclaimed that his decision to place Syria's chemical weapons arsenal under international control was the result of Russia's proposal... and not US military threats. As Russia Today reports, Assad stated

"Syria is handing over its chemical weapons under international supervision because of Russia, the US threats did not influence the decision."

Rossiya 24 is also reporting that Syria is to send documents to the UN for the Chemical Arms Pact. We are sure Israel will be pleased.

Poor Greece: the country that just reported yet another all time record high unemployment rate, this time for the month of June when the jobless rose from 27.6% to 27.9%, apparently does not know that all it had to do to see its unemployment plunge to 0% or thereabouts, was to upgrade from abacus to solar-powered calculator, as the US BLS just proudly announced it did when it reported the latest batch of absolutely garbage "data".

A few days ago we showed what happens when the Bureau of Labor Statistics is caught in a blatant lie. And while we exposed the difference between the NFP and the JOLTS data series, which in some ways are the "stock" effect of labor, it meant that the BLS also had to adjust its "flow" component: the initial weekly claims. Lo and behold, moments ago the DOL just reported last week's initial claims, which printed at a ridiculous 292K, 38K below expectations and the lowest level since April 2006, down from last week's 323K. On the surface great news. The problem once again is that this was a bold faced lie. Only this time even the BLS admitted as much:

• LABOR SAYS CLAIMS DROP DUE TO COMPUTER UPGRADES IN TWO STATES
• LABOR SAYS FAULTY REPORTING BY STATES RESPONSIBLE FOR DROP

Specifically, a larger state and a smaller one that retooled their computer networks still provided the Labor Department with applications counts. Furthermore, the BLS also said that the decrease in filings probably didn’t signal a change in labor-market conditions. In other words, the number is garbage, and the BLS knows the reporting is faulty, but let's go ahead and report it anyway.

Yesterday's record Verizon bond offering, which to some had an eerie sense of deja vu to the TXU 2007 mega-LBO just before the market blew up, caught many by surprise: not only did the underwriters have no problem obtaining over $100 billion in orders to oversubscribe demand for the $49 billion offering, but following the break the bond immediately proceeded to trade a whopping 40-70 bps tighter implying yield pricing could have been done well lower, but the CDS also ripped 11bps tighter. Because nothing says less default risk like $49 billion more in debt. But where did all this demand come from? Did accounts simply have $100 billion in cash lying around? The answer is no, and as the following breakdown of the post-break action in VZ from Deutsche demonstrates, what happened yesterday was a great rotation into the NSA-favorite company and the Telecom space in general, and out of virtually every other credit in the market.