Archive - Jan 16, 2014

The theme of both the robot-ization of the global workforce and the populist desire for a hike in the minimum wage have been popular and ongoing ones here at Zero Hedge. However, never has it been more clear just where the future lies than this chart from BofAML's Michael Hartnett... As he says, "we are long robots, and short human beings."

Equity markets were stumbling lower into the close of the US day session and volume was picking up... the powers that be clearly decided that was not to be allowed and the NASDAQ needed to close green (as we noted previously). JPY was not going to help as overnight volatility had reduced carry games so... slam dat VIX was the game. While not much in nominal size, the 0.3 vols smackdown in VIX starting at 1550ET lifted the S&P 3.5 points to close at the afternoon highs, Trannies up 0.3%! (and helped NASDAQ green and new highs)... But, seconds later (as INTC and AXP earnings disappointed), the entire ramp - and more - was dissolved before S&P futures closed. Ah, the efficient markets...

While victory was declared yesterday, today was a let-down for the exuberant. High beta (NASDAQ and Russell) pushed on but the S&P, Dow, and Trannies slid leaving the NASDAQ YTD best performer (+1%) and the S&P back into the red for 2014. Financials underperformed, Utilities outperformed. Treasuries rallied all day - with the long-end underperforming and a notable flattening across the curve (30Y -2bps on the week, 5Y +2bps). The USD had a quiet day as JPY strengthened modestly (hence the weakness in the S&P) as overnight AUD weakness (poor jobs data) left that carry pair alone in the dark. VIX and credit markets have been notable underperformers relative to stocks in the last 2 days. Commodities were quiet all day with some early downside pressure in the precious metals unwound (leaving then down 0.5% on the week). Of course, it wouldn't be the US equity market without the ubiquitous VIX slam attempt to ignite momentum and get the S&P green - it failed for once!

There is a reason why activism was the best performing hedge fund "strategy" of 2013: as we wrote and predicted back in November 2012 in "Where The Levered Corporate "Cash On The Sidelines" Is Truly Going", US corporations - susceptible to soothing and not so soothing (ahem Icahn) suggestions by major shareholders - would lever to the hilt with cheap debt and use it all not for CapEx and growth, but for short-term shareholder gratification such as buybacks and dividends. A year later we found just how accurate this prediction would be when as we reported ten days ago US corporations invested a whopping half a trillion in buying back their stock, incidentally at all time high prices. Putting aside the stupidity of this action for corporate IRRs, if not for activist hedge fund P&Ls, another finding has emerged, one that was also predicted back in 2012. Because in addition to still soaring mountains of cash, corporations have quietly amassed even greater mountains... of debt. In fact, as SocGen reveals, net debt, or total debt less cash, has risen to a new all time high, and is now 15% higher than it was at its prior peak just before the financial crisis!

Why the dollar may have a huge rally in 2014

Argentina is not Venezuela... yet. Following Maduro's comments yesterday capping Venezuelan profit margins and making black-market FX transactions practically punishable by death (our exaggeration), the Argentine Peso is collapsing...

*ARGENTINE PESO FALLS 2.9% IN BLACK MARKET TO RECORD 11.55/USD (Spot is 6.77 - implying a 41% devaluation!

Of course, this is great news for stocks and the MERVAL is surging once again towards all-time record highs (+130% from the beginning of 2013). No news on toilet paper shortages (yet) in Argentina.

While economists are raising their forecasts for 2014, there seems to be little change in the real underlying fundamentals. Much has been made of the modest uptick in NFIB optimism last month, but small businesshope remains 6 points below pre-recession average levels; and as Bill Dunkleberg notes so succinctly: "The President thinks the way to address the malaise in the economy is to give another $26 billion to the long-term unemployed, shown to produce new jobs by 'independent economists' (we know who that is) according to the President. If you borrow $26 billion from China and give it to consumers, it probably does have a positive impact, but does nothing to fix the economy or encourage labor force participation or improve the labor force." It is quite apparent from both individuals and businesses that the government is the real issue that is impeding economic progress.  Maybe it's time that the current Administration did a little less talking and did a little more listening to what the real drivers of the economy are saying.

While funding custom-fit condoms was stretching the government's buck just a little too far for some, the following 5 stunning expenses, earmarks, and pork spending that Bloomberg uncovered are mind-blowing. From over $500,000 on pet shampoo to what to eat on planet Mars; none of these compare with the back-pay for no work paid to Federal employees during the shutdown. Watch this 72 seconds of gluttony without throwing something at your monitor...

Yes, financial markets are built and intended to fail at times, once they are no longer allowed to fail, they become state tools for policy outcome. 

After the Chinese news/rumors that pummeled NU Skin the last 2 days, the company has finally been forced to make a statement...

*NU SKIN AWARE CHINESE REGS INITIATED INVESTIGATIONS
*NU SKIN SAYS LIKELY NEGATIVE EFFECT ON CHINA REV
*NU SKIN HAS STARTED OWN PROVINCE-BY-PROVINCE BUSINESS REVIEW

After being halted on news pending, NUS was re-halted upon re-opening, plunged further, and is now re-halted down $45 (39%. Herbalife (down 12%) and USANA (down 12%) are also tumbling on this news.

"The "common sense" justifications for these dramatic moves are now well documented. The Federal Reserve (Fed) model, which compares earnings yields on the S&P 500 Index (the inverse of price/earnings) with the Treasury yield, clearly signals to load up on stocks. Common sense also tells us that profit margins are at an all-time high, so clearly it's a good time to be buying stocks. Yellen's dovish background, common sense tells us, is yet further reason to expect continued loose monetary policy and accommodation. And, finally, common sense dictates that recent upward gross domestic product (GOP) revisions, lower unemployment numbers, and a successful holiday retail season, means that of course it's time to load up on stocks. Here's the problem: We don't buy the common sense. And so, like the philosopher boy above, we choose to ignore it. We suggest you do the same, but for good reason."

We have long held that Africa is a crucial region of the world in the near future because there is no more incremental debt capacity at any level: sovereign, household, financial or corporate - in any other region.  As tensions between China and Japan multiply, there is an increasing battle for influence in other states. While China and Japan may look like they’re competing in Africa, the two countries are actually playing different games. Whereas Abe seems content to have Japanese businesses make profits, China is actively pursuing soft power on the continent.

Curious where the Fed's trillions in excess reserves have "gone"? Then look no further.

While the "economy in general" and "jobs" remain a close second (with the latter rising rapidly despite a plunging - and entirely useless - unemployment rate), Americans polled by Gallup still see the number 1 problem facing the US is "dissatisfation with government; poor leadership and abuse of power." Compared with a year ago, mentions of government are up slightly; but mentions of healthcare, on the other hand, have quadrupled -- from 4% in January 2013 to 16% today!

No cash= no dividends= no yield.