Archive - Jan 13, 2014

When in doubt... make it up.

Folks, I wish I had the answers for you this week.

With the Dow Transports pressing new record highs this morning (up 1% in 2014), the Dow Industrials are still lagging (down 0.8% year-todate). Despite a bid in Treasuries this morning (5Y and 7Y -2bps), stocks are jumping since the US open, helped by a lift in JPY crosses (USDJPY bounce off 103), dragging the NASDAQ into the green once again for 2014. Gold and silver have recovered the early losses but WTI crude continues to slide (back under $92).

Worried that Starbucks is running out of real estate? Concerned that McDonalds will be unable to fill its quota of minimum-wage employees as urban sprawl caps out? Have no fear for as the following map shows, there is plenty of room left in the world for the chains to expand... and of course, where there is a Starbucks there is mass affluence, right? Of course, extremes of heat and cold will require a little adaptation but that's what free easy money is for...

When it comes to forecasts and outlooks for 2014 (or 2013, or 2012, or 2011, etc), there is no way one can't be tired of the endless Keynesian drivel which the sellside bombards its gullible client base, which can be summarized as follows: "this is the year when the central bank strategies, which have failed to boost the global economy for the past 5 years, will finally work and the economy picks up - yes, this time will be different, we promise. Oh, and 'if' we are wrong (again), well just blame it on cold weather in the winter, or warm weather in the summer and if need be, delay the 'recovery" to the following year, while blaming the lack of insufficient stimulus - because $1 trillion in balance sheet expansion per year is obviously not enough." Rinse. Repeat. One would think spinning the same yarn year after year, they would get it right purely by luck at this point. Alas, they haven't. So for everyone tired of listening to the same old broken record, here is a completely different "Austrian" perspective, one shared by Scotiabank's Guy Haselmann.

Just when you thought bizarro world couldn't get any, er, bizarrer, here comes - who else - Dennis Gartman, who is now long gold.... in crude oil terms.

Further, we shall recommend owning gold in terms of crude oil, buying the former and selling the latter in equal dollar sums. Further, to eliminate the impact fo the Brent/WTI spread from this trade, we’ll do half of the oil trade in WTI and half in Brent.

Uhm, #Ref!

In the last 8+ years, housing has proceeded through a cycle of bubble-bust-echo-bubble: now the echo bubble is crumbling, for all the same reasons the 2006-7 bubble burst: a prosperity based on asset bubbles and low interest rates is a phantom prosperity that cannot last.

Over the weekend, the entertaining @HistoryInPix twitter account posted this distrubing photo of the cemetery where all the radioactive vehicles that were used in the Chernobyl cleanup went to die. One can't help but wonder: where is the comparable "cemetery" for the Fukushima disaster cleanup, and does the above photo have anything to do with the recently passed secrecy bill that was "designed by Kafka and inspired by Hitler"...

Following some early strength in the Asia session, which saw Gold over $1255 (its highest in a month), the European session has seen pressure on the precious metals leak lower. That 'leak' was then helped on its way by the almost ubiquitous 8amET volume dumptaking gold and silver down markedly (though not catastrophically for now). The only other asset class showing any real action is GBPUSD (with GBP being sold aggressively) with Treasuries flat and stocks down modestly but stable for now.

After last week's economic fireworks, this one will be far more quiet with earnings dominating investors' attention: US financials reporting this week include JPM and Wells Fargo tomorrow, BofA on Wednesday, GS and Citi on Thursday, BoNY and MS on Friday. Industrial bellwethers Intel (Thurs) and General Electric (Fri) are also on this week’s earnings docket. On the macro front, this coming week we have two MPC meetings - both in LatAm. For Brazil consensus expects a 25bps hike in the policy rate. For Chile consensus forecasts monetary policy to remain on hold. Among the data releases, one should point out inflation numbers from the US (CPI and PPI), Eurozone, the UK and India. We also have three important US producer and consumer surveys - Empire Manufacturing, Philadelphia Fed (consensus +8.5), and U. of Michigan (consensus 83.5). Among external trade and capital flow stats, we would emphasize US TIC data, as well as current account balances from Japan and Turkey. Finally, the accumulation of FX reserves in China is interesting to track as it provides an indication of CNY appreciation pressure.

"We downgrade the US equity market to underweight relative to other equity markets over 3 months following strong performance. Our broader asset allocation is unchanged and so are almost all our forecasts. Since our last GOAL report, we have rolled our oil forecast forward in time to lower levels along our longstanding profile of declining prices. We have also lowered the near-term forecast for equities in Asia ex-Japan slightly. Near-term risks have declined as the US fiscal and monetary outlook has become clearer. Over 3 months our conviction in equities is now much lower as the run-up in prices leaves less room for unexpected events.... Our US strategists have also noted the risk of a 10% drawdown in 2014 following a large and low volatility rally in 2013 that may create a more attractive entry point later this year."

• Full onslaught 1: New Jersey Gov. Chris Christie's Aides Pressed Hard for Endorsements (WSJ)
• Full onslaught 2: Feds investigating Christie's use of Sandy relief funds (CNN)
• Iran nuclear deal to take effect on January 20 (Reuters), Iran to get first $550 million of blocked $4.2 billion on February 1 (Reuters)
• Sen. McCaskill didn’t want to be in same elevator with Hillary Clinton (Hill)
• The banks win again: Basel Regulators Ease Leverage-Ratio Rule for Banks (BBG)
• Ireland's Rebound Is European Blarney (NYT)
• Democrats prove barrier for Obama in quest for trade deals (FT)
• Federal Reserve Said to Probe Banks Over Forex Fixing (BBG)

The Perth Mint's Bron Suchecki has written an interesting blog post regarding the real risk of gold coin shortages and rationing happening again. This is another reason why if you are considering buying coins or bars for delivery or bullion storage in Zurich or Singapore, it is best not to wait. "Don't wait to buy gold and silver. Buy gold and silver and wait". 

With no major macro news on today's docket, it is a day of continuing reflection of Friday's abysmal jobs report, which for now has hammered the USDJPY carry first and foremost, a pair which is now down 170 pips from the 105 level seen on Friday, which in turn is putting pressure on global equities. As DB summarizes, everyone "knows" that Friday's US December employment report had a sizeable weather impact but no-one can quite grasp how much or why it didn't show up in other reports. Given that parts of the US were colder than Mars last week one would have to think a few people might have struggled to get to work this month too. So we could be in for another difficult to decipher report at the start of February. Will the Fed look through the distortions? It’s fair to say that equities just about saw the report as good news (S&P 500 +0.23%) probably due to it increasing the possibility in a pause in tapering at the end of the month. However if the equity market was content the bond market was ecstatic with 10 year USTs rallying 11bps. The price action suggests the market was looking for a pretty strong print.