Archive - Oct 22, 2014

Last Wednesday the markets plunged on a vague recognition that the central bank promoted recovery story might not be on the level. But that tremor didn’t last long. Right on cue the next day, one of the very dimmest Fed heads - James Dullard of St Louis - mumbled incoherently about a possible QE extension, causing the robo-traders to erupt with buy orders. And its no different anywhere else in the central bank besotted financial markets around the world. Everywhere state action, not business enterprise, is believed to be the source of wealth creation - at least the stock market’s paper wealth version and even if for just a few more hours or days. The job of the monetary politburo is apparently to sift noise out of the in-coming data noise - even when it is a feedback loop from the Fed’s own manipulation and interventions.

Because after doing the math, we find that the biggest stock market surge in 2014 was over what boils down to be a central bank injection of... $5 billion per month?

Saxo Bank's Chief Economist Steen Jakobsen is predicting another 'shock drop' in the markets within a few weeks. With debt and low inflation continuing to create a nervous atmosphere behind most markets, Steen argues that we will hit fresh lows in mid-November. Steen takes the view that central bank policy is creating a 'fantasy land' for investors and he points out that the recent 'day dive' in markets was a closer reflection of reality. Steen outlines his suggestions for trading ahead of another dip in mid November with targets for the S&P 500 around 1810 and the Dax at 8000 - 7800. Be long fixed income as it is "a free put on the equity market.. and the economic cycle is not yet ready to adapt to a rising interest rate."

What a difference a day makes...

The seemingly insatiable appetite of the growing Indian middle class for gold is causing the government in India to again consider imposing sanctions on the importing of gold. 

Having just engaged in QE for TWO SOLID YEARS STRAIGHT the Fed would totally destroy any and all credibility in its monetary policies to engage in QE anytime within the next three to six months.

• BULGARIA CENTRAL BANK CORPBANK PRE-JUNE REPORTS 'MISLEADING'
• BULGARIA CENTRAL BANK SAYS CORPBANK ASSETS ARE 6.7B LEV
• BULGARIA CENTRAL BANK SAYS CORPBANK AUDIT SHOWED ONLY 13 PERCENT OF LOANS HAD VALID COLLATERAL

What a difference 24 hours makes. Yesterday, ECB rumors sparked precious metal buying on heavy volume. Today, more denials of ECB corporate bond buying combined with a slightly-hotter-than-expected inflation print (i.e. lower odds of Fed unleashing QE4) has sent silver (and gold) tumbling... on very heavy volume...

"They know Baghdad. They've lived in Baghdad," said Lt.Col Oliver North, warning over the weekend that sources in Iraq believed ISIS was planning a "major attack" against the embassy in Baghdad. Yesterday we get some confirmation - via ISIS - that they did in fact reportedly strike the U.S. embassy in Baghdad. As Inquisitr reports, on Tuesday the Islamist militant group took credit for a mortar attack against the embassy in Baghdad. The group bragged about the attack on social media, claiming that there were likely casualties - “Four rockets strike Green Zone in #Baghdad; helicopters hovering over the Green Zone; ambulances heading that way after strikes!!” one ISIS militant noted on Twitter. As North concludes, "They are at the gates of Baghdad. They’re coming for us."

"Amidst this volatility and performance dispersion, we struggle with our instinct that it is a good time to short stocks with the reality of the past few years of short-selling carnage. We were intrigued by investment legend Julian Robertson’s recent comments that, “we had a field day before anyone knew anything about shorting. It was almost a license to steal. Nowadays it’s a license to get hosed.” There is no doubt that the complexities around single name short selling have increased massively following 2008 – partly as a function of government regulation and intervention, partly due to negative rebates being the norm – but we have slowly been getting back in to the shallow end of the pool." - Dan Loeb

Alongside the CPI data released earlier which showed the smallest possible broad price increase, when considering that previously the BLS reported flat nominal hourly wages in September, it implied that real wages declined  once again. Sure enough, in a separate report today, the BLS announced that real average hourly earnings (in constant 1982-1984 dollars) declined once again, this time from $10.34 to $10.32, a -0.2% drop from past month. This also means that since March, there has been just one month in which real hourly wages have increased, and that was mostly due to the outright deflationary print the BLS reported last month.

After last month's shocking 0.2% drop in CPI, driven almost entirely by plunging gasoline prices, September CPI once again posted a modest rebound, rising 1.7% from a year ago, or 0.1% month over month, just above the 0.0% expectation, with core prices excluding food and energy rising precisely in line with the 0.1% expected. Broad prices were pushed lower by another month of declining energy prices (Gasoline -1.0%, Fuel Oil -2.1%), however offset by rising food prices which increased by food up 0.3% and Utility bills, rising 1.6% in September - the highest price increase in Utility bills since the 7.5% surge in March. Then again, one wonders how food inflation is so subdued when the report itself notes that "the index for beef and veal rose 2.0 percent in September and has now risen 16.7 percent since January. The index for dairy and related products increased 0.5 percent, its tenth increase in the last 11 months." But hey: there is always artificial food in a box which is plunging.

Correlation is not causation but this is uncanny...

It will be the plotline of scary stories parents tell their children for decades to come: in Q1 2014, the US economy was supposed to grow 3%... and then it snowed. This led to a -2% collapse in the world's largest economy. Yes, inconceivably heavy snowfall (in the winter), and frigid temperatures (in the winter), were the reason for a $100+ billion swing in US GDP. Well, as the following chart from DB's Torsten Slok shows, of the roughly $2 trillion in GDP the global economy is expected to grow in 2015, about 90% of that is expected to come from China and the US!

• Russia Loses Oil Ally in De Margerie After Moscow Crash (BBG)
• Austria's Erste denies report it has failed stress tests (Reuters)
• Sweden gets two new sightings, as hunt for undersea intruder goes on (Reuters)
• Companies Try to Escape Health Law’s Penalties (WSJ)
• Mud and Loathing on Russia-Ukraine Border (BBG)
• NOAA employee charged with stealing U.S. dam information (Reuters)
• Lower Oil Prices Seen Easing Japan’s Trade Pain (WSJ)
• Michigan becomes 5th U.S. state to thwart direct Tesla car sales (Reuters)
• Maglev Train Seen Making Washington-to-Baltimore Trip at 311 MPH (BBG)