Archive - 2013

Just because we thought it worthwhile to keep track of how out of control things are getting in Japan, a quick summary of this evening's data. The Japanese trade balance (adjusted) shows a deficit for the 32nd month in a row and has surged to its largest (worst) level on record. It has missed expectations in 5 of the last 6 months. Imports rose more than expected again with a 10.2% MoM gain in imports from the US (and 35% YoY). This massive deficit is before the military spending unveiled last night has hit though one thing is certain, Goldman Sachs will be out with a report any second proclaiming the mythical J-curve about to arrive any moment... The reaction - JPY dumps and NKY explodes higher as bad news is good news in QQE land.

Americans Have Lost Faith

Just when one thought the government's boondoggles couldn't get any worse, along comes this...

America’s political economy has changed incrementally enough that many people have not noticed what is really happening. It’s over for most of us. You can call it collapse, or you can call it restructuring. You can even call it a recovery. But you can not call it sustainable, or pleasant. The overall trajectory is toward decline, decay, destitution... This collapse is the collapse of dreams, hopes and expectations, not an obvious one like the collapse of the currency or the government. And if you have no hopes or dreams, and your expectations are sufficiently low, then you might not even be aware of it. For the time being, what is really in everyone’s interest, here and abroad, is to keep playing along. Collapse? What collapse? We all have to keep pretending everything is fine, or things will get even worse quickly - for us. But if things are continuing to get worse for us in any case...

Here is the second half of Goldman's 100 best charts for 2013. 

According to a recent survey by the Pew Research Center, just 33% of Americans think their children will have a better life than they did. On the other hand, 62% believe their children will be worse off. They’re likely to be right.  The typical American family has seen its real income (adjusted for inflation) fall for 5 consecutive years now, and it earns less in real terms that it did in 1989.

When one imagines the world's two largest bureaucracies - the European Union and the US - trying to coordinate what may be the world's most sophisticated free-trade agreement, one would expect things like genetically modified crops, chlorine-washed chicken, and beef quotas to be key sticking points. One would not expect Greek Feta cheese to be one of the main hurdles. Which is precisely what has happened, because as Kathimerini reports  "a fight over who can call Greek-style cheese “feta” is blocking the way toward the world’s largest free-trade deal. Of course, in a world in which something as "consequential" as who gets to call Feta by its name will require days if not weeks of negotiations, one wonders why bother with trade when central planners can just print commerce and wealth all day long anyway.

When most investors think about South America, they think about Brazil: the single largest South American economy.

"The Fed will never end QE for good..." blasts Marc Faber, "they may do some cosmetic adjustments, but within a few years, [Fed] asset purchases will be substantially higher than they are today." There will be another weakening in the US economy, Faber warns, and "the Fed will argue it hasn't done enough and will do more... they have been irresponsible for 20 years." Use rallies to reduce exposure, he warns, "we will go up until it is over; and when it is over the drop will be larger than 20%," and the best opportunity, Faber notes, is in the most-depressed asset-class he looks at: gold and gold stocks.

Treasuries rallied from the pre-open release of inflation data this morning and never looked back (with 30Y unch on the week and 5Y -4bps). Stocks tumbled notably through the US open but recovered as Europe closed hovering quietly around VWAP all afternoon. The rally back in stocks coincided with a drop in VIX which smacked of hedges being lifted and exposure being reduced into the momentum-ignoted strength. Gold and silver saw weakness (though the latter is still +1% on the week). The USD weakened notably as Europe closed with some significant CHF buying. Stocks closed ugly...as VIX was significantly bid (up for the 6th day in a row - and 14 of last 16 days) and the 4th Hindenburg Omen appeared as the cluster grows.

While this morning we were re-assured by the government's statistics that there is no inflation (or deflation); implicitly enabling the Fed's extreme monetary policy to continue with no immediate consequence, it would appear there is an oddly synchronized rise in the price of something critical to day-to-day 'coping' for many - alcohol prices. Spurious correlation or unintended consequence? Cost-push or demand-pull?

Balls indeed...

There seem to be two camps at Deutsche Bank these days: one, lead by the observant and somewhat contrarian Jim Reid, who recently asked the all important question about 2014 ("what if there is a recession?"), who accurately observed that something "structurally changed" since the great financial crisis (pretty clear what), and who even dared to suggest that the Fed will never taper, especially with the economy so late in the cycle already. And then there is Joe LaVorgna, best known for having a losing track record to Groundhog Phil. It appears that this morning Joey emerged from his lair deep inside 60 Wall, sniffed the cold air, and saw the shadow of a $10 billion taper, which is what he predicts the Fed will do tomorrow.

[12:47:34 pm]: CALLER 
So, if I pay the fee, then I can wait until someone gets sick to apply, and I cannot be turned down?