Archive - Sep 2013

Some joked that the Chicago Fed's Twitter account must have been hacked buyt it turns out that is not entirely true. Following Esther George's "renegade" comments last night, Austan Goolsbee was unleashed by Fed's Evans to lay down some ugly truthiness in 140-character-world. The results - in these 2 tweets - say everything about the level of excessive optimism that remains in our new normal world...

One would think that five years after the bail out of the GSEs, that the Federal Housing Agency, the government agency created to insure loans made by banks and other private lenders for home building and home buying, would be stable and growing. After all, the "housing recovery" and those $3 trillion (and rising exponentially) in liquid injections by the Fed should have assured it. Right? Wrong. Moments ago, the FHA, just as we predicted, officially announced it needs a government bailout in the form of a $1.7 billion in funding from the Treasury to "cover projected losses in a mortgage program for seniors" and specifically losses due to reverse mortgages: those Fonzy-advertized fake piggy bank programs that end up anyone who uses them through the nose, and now taxpayers too.  But... but... but... if the FHA just failed.... does that mean they lied about the housing recovery too? Unpossible!

But, but, but, it was all so dovish...

Following the flash print's record miss, today's UMich consumer confidence came in below expectations (that had been cranked down from 81.9 to 78.0). At 77.5, it was the first miss in 2013 and the lowest print since April and the largest 2-month decline in 2013. This is the first consecutive monthly drop in 14 months and the largest miss vs expectations on record. Printing at 76.8 (against an expectation of 82.0), this is the lowest in 5 months and points to the picture we have been painting of a consumer increasingly affected by rising rates and soaring gas prices amid stagnant incomes. As Citi notes below, this is the exact same pattern we have seen play out in the last 2 cycles and suggest significant downside risk to US equities. The economic outlook sub-index collapsed to its lowest since April.

Goldman is on a roll: after crucifying JCP only to underwrite their disastrous following on offering (which is already down 4% from the offering price and has to be a world record in the shortest time to rape muppets), it is now Deutsche Bank's turn. To wit: "We revise our forecasts, to reflect the communicated revenue outlook, litigation provisions and dividends. We now expect a marginal loss in 3Q." More: "DBK’s warning on 3Q FICC revenue and an expectation of clarity regarding the Fed proposal “very shortly” warrants an update; we continue to rate DBK shares Sell, and see better upside potential elsewhere in the sector" and the punchline: "Following the Fed proposal’s implementation, we expect severe revenue/profit pressure, driven by a constricted ability to “export” lower funding costs across the Atlantic and operational disruption." So how many hours until DB announces a Goldman-led equity offering?

Following yesterday's lies, lies, and more lies, is it any wonder that everyone and their mum is dumping JCPenney stock with both hands and feet this morning. It would appear that whatever Goldman said to 'pitch' the new shares to "investors", those muppets have seen their new prized portfolio additions at $9.65 monkey-hammered faster than Cramer changes his minds on trades. With a massive 80 million shares already traded (average daily volume is in the 10-15mm range), it would appear that all that fresh new capital to burn did nothing for investor confidence.

"This is the third act in an improbable triple-fucking of ordinary people that Wall Street is seeking to pull off as a shocker epilogue to the crisis era. Five years ago this fall, an epidemic of fraud and thievery in the financial-services industry triggered the collapse of our economy. The resultant loss of tax revenue plunged states everywhere into spiraling fiscal crises, and local governments suffered huge losses in their retirement portfolios – remember, these public pension funds were some of the most frequently targeted suckers upon whom Wall Street dumped its fraud-riddled mortgage-backed securities in the pre-crash years.... It's a scam of almost unmatchable balls and cruelty, accomplished with the aid of some singularly spineless politicians. And it hasn't happened overnight. This has been in the works for decades, and the fighting has been dirty all the way."

The Baltic Dry Index fell 3.2% today, and 4% in the last 2 days, the most in 3 months; and Capesize (the more frequently cited containers for iron-ore) plunged 6.8% to $38,023 (from highs of $42,211 a day just 2 days ago). Despite the mainstream media's seeming obsession with these indicators (when they rise only - not when they fall), illuustrated recently by Jim Cramer's diatribe on why the Baltic Dry's spike means that all is well in the world again, as Bloomberg notes, the biggest rally in freight costs since 2009 is temporary because there's still huge ship glut. Brazil’s iron-ore producers accelerated exports of the commodity in July and August, compensating for shipments that slumped to a two-year low in June, but the expansion in cargoes won't continue to grow at this pace.

There were no surprises in today's Personal Income and Spending report. At $14.188 trillion, Personal Income rose 0.4% in August, just as expected, and up from an upward revised 0.2% in July. On the spending side, US Personal Outlays were $11.94 trillion, an increase of 0.3% from July, and also higher than the upwardly revised July spending of 0.2%. The PCE Deflator came in at 0.1%, as expected, while the PCE Core rose 0.2% compared to expectations of 0.1% and up from 0.1% last month. The breakdown of components at both income and spending levels was uniformly distributed with nothing standing out. Real Disposable income rose 1.6% Y/Y but only due to a change in the current-dollar series as a result of an adjustment in the implicit price deflator which revised recent numbers to appear larger. Finally, since in nominal terms incomes rose a fraction more than spending, the implied savings rate rose by the same fraction: 4.5% to 4.6%, the highest since May.

‘Tapering’ may be put off indefinitely due to the very fragile state of the massively indebted U.S. economy. This means that interest rates must be kept low for as long as possible, leading to money printing and electronic money creation on a scale never before seen in history.

This will inevitably lead to higher gold prices - the question is when rather than if. 

It would appear that between the fears of a government shutdown and the battle over the 'full faith and credit' of the US, traders have decided that the stroke-of-midnight agreement is potentially less viable this time as both parties feel the other has more to lose. The USD is being sold against all majors and gold, silver, and WTI crude is well bid as investors seek the safety of hard assets over printable fiat. Of course, that could all change on the next economic data or Washington headline... buckle up...

Last night Japan reported August CPI/inflation news that at least on the surface were astoundingly good: at 0.8%, the core CPI (excluding fresh irradiated food) was more than expected and higher than July's 0.7%. And yet, even the most absurdly clueless economist is silent this morning in their praise of Abenomics, which supposedly has succeeded in its one goal - bringing sexy inflation back. Why? Perhaps the reason is that whereas Keynesian inflation in which prices and wages are broadly if modestly rising as a result of a properly functioning monetary system, is indeed just what the Doctor of modern economics ordered, soaring input costs driven by FX differentials and current account flows, "offset" by plunging wages is precisely the opposite of what Abenomics was supposed to be. Which is exactly what is going on in Japan.

Italy’s Stability Program targets a 5%-6% primary budget surplus, and 3% nominal GDP growth. Both strike JPMorgan's Michael Cembalest as unrealistic in the context of post-crisis Italy. Italy ran a 6% surplus for a brief moment in the 1990’s but it didn’t last, as it was the result of a prior devaluation helping growth, some asset sales and some tax increases. Only asset sales seem feasible in Italy right now, if anything. If Cembalest's concerns are correct, Italy will remain a country with almost twice the debt/GDP ratio as the US; unbreakable interdependency of the government, the banks, and the ECB; and low GDP and employment growth. If history is any guide, he will be right as the last few years have seen the biggest collapse in Italian GDP since The Unification in 1861...

• House GOP banking on Plan C (Politico)
• Pimco shook hands with the Fed - and made a killing (Reuters)
• BlackBerry's Torsten Heins has a $55 Million golden parachute (Reuters)
• JPMorgan Urged to Pay More in Mortgage Deal (NYT)
• Soros Adviser Turned Lawmaker Sees Crisis by 2020 (BBG)
• U.N. Members Agree on Syria Disarmament (WSJ)
• U.N. Says Humans Are 'Extremely Likely' Behind Global Warming (WSJ)
• The non-falsifiable threats emerge: Shutdown Would Shave Fourth-Quarter U.S. Growth as Much as 1.4% (BBG)
• Swaps Rules Worry Industry: Coming Regulations Have Market Players Concerned About Possible Disruption (WSJ)