Archive - Jan 23, 2014

With Russia offering $10 billion in funds to the troubled nation this morning, and Ukrainian capital markets in disarray over the anti-anti-Europe protests and ongoing riots, Stefan Karlsson offers an alternative take on the "people vs dictator" meme - especially in light of the fact that Yanuckovich is supported by a large part of the population (specifically in the eastern and southern parts of the country).

With record debt issuance funding record share buybacks and record wage disparity for executives, the "fruits of the rebound" in global asset markets (read - central-bank-inspired liquidity douche) have passed over a whole generation. As Bloomberg's Niraj Shah notes, the risk of young people facing long-term unemployment is rising as firms increase payouts to shareholders and executives rather than invest in new workers, the ILO has warned. Structurally high unemployment is the second-biggest concern this year, according to the World Economic Forum’s global risks 2014 report.

Quite a day...

• All-time record lows in many Emerging Market Currencies (TRY, ARS, VENZ (unof.) most)
• Nikkei 225 -3.75% - biggest drop in 7 months
• Emerging Market Stocks -3% - (4 month lows)
• USD Index -0.7% - biggest drop in 3 months (2014 lows)
• USDJPY -1.3% - biggest drop in 5 months
• AUDJPY -2.35% - biggest drop in 7 months (4 month lows)
• Dow -1.3% - biggest drop in 5 months (5-week lows)
• 30Y Treasury Yield -9bps - near biggest drop since April 2013 (2-month lows)
• Gold +2.3% - biggest gain in 3 months (2 month highs)
• VIX +1.8vols - biggest jump in 3 months (1 month highs)
• IG Credit +2.5bps - biggest jump in 5 months (1 month wides)
• HY Credit -$0.5 - biggest drop in 4 months (1 month lows)

It seems that without the safety net of Fed flows, the reality that bad news might just be bad news and event risk is a real risk just started to hit home. The deer is back...

Nearly two years ago, before the topic of (the great and constantly missing) Capex became a mainstream media mainstay, we said that as long as the Fed was actively engaged in manipulating the capital markets - and this was before the Fed launched its endless QEternity - the bulk of corporate cash would go not into investing for growth, i.e., capital spending and/or hiring, but dividends and (levered) stock buybacks. Nearly $1 trillion in stock buybacks later, and zero growth Capex, we were proven right, much to the chagrin of permabulls who said the capex spending spree is just around the corner again... and again... and. Of course, if this were to happen, it would promptly refute our fundamental thesis that the Fed's presence in the market results in the terminal misallocation of efficient corporate capital. We were not concerned. We are even less concerned now having just read an FT piece forecasting that "capital spending by US companies is expected to grow this year at its slowest pace for four years, in a sign of corporate caution over the outlook for global demand." And like that, dear permabuls, the key pillar beneath all "corporate growth" thesis was yanked. Again. Fear not. There is always 2015. Or 2016. You get it.

Despite his own admission that he is not a 'product guy', Carl Icahn extends his 'pitch' for investors to buy buy buy Apple stock from one of using their offshore capital (or borrowing against it) to buyback inglorious amounts of shares to how great the "wearables" business could be...

• *ICAHN: ULTRA HD REPRESENTS 'PROMISING MOMENT' FOR APPLE
• *ICAHN: APPLE HAS 'COMPELLING OPPORTUNITY' IN WEARABLE DEVICES
• *ICAHN: INVESTING IN APPLE IS HOW GOOD INVESTORS MAKE MONEY

So buy you dummy... oh and don;t worry because Icahn has your back, even if he knows that AAPL does not...

• *ICAHN SAYS TIM COOK IS NOT A 'FINANCE GUY'
• *ICAHN: NO 'IN DEPTH' KNOWLEDGE OF FINANCE ON APPLE BOARD

Apple is - according to Icahn - the most over-capitalized company in corporate history...

Just a week ago, Ben Bernanke stumbled when he almost admitted that "forward guidance worked in theory, but not in practice," and while the Fed is sticking to its guns with lower for longer "forward guidance" to replace "as much money as you can eat" quantitative easing; and the ECB promising moar for longer; the Bank of England's Mark Carney just threw them all under the bus by u-turning on his employment-based forward guidance strategy. Having previously established thresholds for his monetray policy guidance, as the FT reports, he has now ditched those plans (as we warned he might "lose his credibility" here) as the British economy is "in a different place" now. And still, we are supposed to trust these bankers to run the world? Perhaps most interesting is the FT changed its title on the story very quickly!

In the aftermath of earlier comments from White House spokesman Carney that the US is considering sanctions for Ukraine violence, a move aimed squarely at Putin, at least several US private sector companies have decided to take matters into their own hands. To wit: "Express delivery companies DHL and FedEx said on Thursday they had suspended foreign shipments to individual customers in Russia because of stricter customs procedures, making it harder for internet users to buy goods from abroad. DHL will suspend all shipments of goods for personal use to Russia from January 27, the company said in emailed comments, after already suspending most such imports already in 2010."

UPDATE: The Argentine Trade Balance missed surplus expectations by the most in 3 years (and 2nd most on record).

As those who follow Zero Hedge on twitter know, we have recently shown a keen interest in the collapse of the Argentine currency reserves - most recently at $29.4 billion - which have been declining at a steady pace of $100 million per day over the past week, as the central bank desperately struggles to keep its currency stable. Actually, make that struggled. As of today it is not just the collapse in the Latin American country's reserves, but its entire currency, when this morning we woke to learn that the Argentina Peso (with the accurate identifier ARS), had its biggest one day collapse since the 2002 financial crisis, after the central bank stopped intervening in currency markets. The reason: precisely to offset the countdown we had started several days back, namely "an effort to preserve foreign exchange reserves that have fallen by almost a third over the last year." Oops.

...Gold and Silver miners...

With the ongoing strength in JPY, Japanese stocks (the highest beta to the previous collapse in the Yen) are crumbling. The Nikkei 225 is now down over 500 points from yesterday's highs and at its "cheapest" to the Dow this week... Still think it's all about China?

While most of the attention in the Chinese shadow banking system is focused on the Credit Equals Gold #1 Trust's default, as we first brought to investors' attention here, and the PBOC has thrown nearly CNY 400 billion at the market in the last few days, there appears to be a bigger problem brewing. As China's CNR reports, depositors in some of Yancheng City's largest farmers' co-operative mutual fund societies ("banks") have been unable to withdraw "hundreds of millions" in deposits in the last few weeks. "Everyone wants to borrow and no one wants to save," warned one 'salesperson', "and loan repayments are difficult to recover." There is "no money" and the doors are locked.

Back in August, when we wrote that "A Stunning 60% Of All Home Purchases Are "Cash Only" - A 200% Jump In Five Years" based on Goldman data, many laughed, unable to fathom that the majority of the US housing market has become a flippers' game played by institutions and the uber wealthy, who don't need a stinking mortgage to buy that South Beach mansion. As it turns out we were just a little ahead of the curve as usual, and as real estate company RealtyTrac reported overnight, with data that naturally is delayed due to the delayed impact of houses coming out of the much delayed foreclosure pipeline, "All-cash purchases accounted for 42.1 percent of all U.S. residential sales in December, up from a revised 38.1 percent in November, and up from 18.0 percent in December 2012." That's a 10% increase in one month for a 6-9 month delayed series, which means that in reality, roughly about 60% of all homes are now purchased with cold, hard cash.

One of the most disturbing and relentless trends over the past several years has been the redirection of war technology and equipment from the battlefield abroad toward domestic use in the USA. This has resulted in a militarization of police across the nation and has encouraged small towns to use Department of Homeland Security (DHS) grants to purchase ridiculous items such as tanks. Sadly, it appears this trend is only accelerating. With billions of dollars already spent, and failed wars abroad, the military-industrial complex needs to continue to generate cash flow. May as well just use it against the American people...

Defense contractor Raytheon last year touted an exercise in which it outfitted the aerostats planned for deployment in suburban Baltimore with one of the company’s most powerful high-altitude surveillance systems, capable of spotting individual people and vehicles from a distance of many miles.

"Gold gets explosive above 1270. Watch out. With the US $ coming under pressure, the potential further gold gains is high and rising. 1270 IS KEY. A break of the 1270 pivot should be the catalyst for short squeeze higher, exposing the confluence of resistance between 1362/1399."

Ass seen from Fort Lee New Jersey.