Archive - Nov 20, 2014

Day after day, well-dressed talking heads are paraded on business media and proclaim how cheap Japan is, how Abenomics will work (he promise... if it doesn't we'll have to question everything we believe in), how GDP is backward-looking (so ignore it... and every other economic indicator), and how being long Japanese stocks (of course, hedged back to dollars because you don't want to take the currency risk that Abe is creating) is a "no brainer." The problem with that strategy is... in 2014, the JPY-hedged Japanese stock market investor in the US has not had a daily close in the green year-to-date and is down over 5% for the year... but it gets worse.

As Hilary Clinton starts to ponder the curtains she wants to hang in the Oval Office, there is only one person who can realistically stand in her way: Rand Paul.

With half the nation covered in snow, according to ABC, nowhere appears to have had it worse (or more suddenly) than upstate New York. As images pour in from lake-effect snow, to The Buffalo Bills stadium, and from scenes caught in a snow storm to pandas playing, we thought the following stunning drone's-eye-view over Erie County was both incredible in its beauty and cruel in its GDP-destroying reality.

‘Punishment Interest,’ as Germans call it with Teutonic precision, becomes a pandemic.

"The multiple expansion phase of the current bull market ended in 2013. The strong S&P 500 YTD price gain of 10% roughly matches the realized year/year EPS growth of the index. The index has climbed by 17% annually during the past three years as the consensus forward P/E multiple surged by nearly 60% from 10x to 16x. ... We forecast US stocks will deliver a modest total return of 5% in 2015, in line with profit growth. The US economy will expand at a brisk pace. Corporations will boost sales and keep margins elevated allowing managements to both invest for growth and return cash to shareholders via buybacks and dividends. Investors will cheer these positive fundamental developments."

In previous commentaries, readers have seen scoffs of derision with respect to (arguably) the two, most-important propaganda myths of the 21st century: the New Normal, and the New World Order. The gist of that criticism is that we rarely see anything truly “new” in our lives, in conceptual terms.

The declaration (through propaganda and/or disinformation) that we have two all-encompassing, new paradigms which supposedly comprise our current reality is patently ludicrous, on its surface. Context changes. Principles are immutable.

Because nothing says rational human stock-buying like the entire world's PMIs collapsing to multi-month lows. Thank the lord of the markets for AUDJPY which took over the mantle from USDJPY as US equities opened... Of course, it is OPEX tomorrow, so this all makes perfect sense. Now all we need is for a stock exchange to break and the unrigged game is complete...

Despite record low bond yields and all the promises one can bear from politicians and central bankers, the people of Europe are the least confident since February. At -11.6, missing expectations of a slight improvement from -11.1 to -10.7, this is the biggest miss since August 2011. It's perhaps not surprising given the near-record highs in unemployment but oddly, confidence seems highly correlated to EUR strength (or weakness)... the opposite of what the market hopes for.

The Ebola crisis has faded from headlines but remains a risk after the death of another Ebola patient in Nebraska and the death of a suspected victim in New York yesterday. This brings the number of confirmed deaths to two in the U.S. and possibly three if the New York victim is confirmed as having had Ebola.

Because when the rape and pillaging of the US middle-class begins at the very top, it won't end until the sharp metal objects finally start falling.

Recovery, we have a problem... November's Flash US Manufacturing PMI printed a 10-month lows 54.7, missing expectation sof 56.3 by the most on record and tumbling for the third month in a row. The last 2 mnths have seen the biggest drop since June 2013 ands as Markit notes, suggests a further drop in GDP growth expectations of only 2.5% in Q4. Output is down for the 3rd straight month and Surprise!! Export market weakness is being blamed... as it seems the US cannot decouple from the rest of the world's slump after all and is - as we have explained numerous times - merely on a lagged cycle. We're gonna need more Fed-fueled subprime-auto-loan malarkey to keep this dream alive.

BMO Capital Markets economist Sal Guatieri notes that the BMO Economics team has lowered its U.S. fourth quarter gross domestic product (GDP) growth estimate to 2.5% from 2.8% due to weaker housing starts and a view that November’s activity could get chilled by polar vortex 2. While October was relatively warm, November has been anything but. However, he does not expect the sort of massive hit that GDP suffered in the first quarter of 2014 due to cold weather.

After two years, and 396 pages of report, the Senate investigations committee finds (translating their gobbledygook into English) that the banks did indeed corner and rig the commodity market. As Bloomberg reports, the Senate panel said the firms have eroded the line separating banking from commercial activities to the detriment of consumers and the financial system. The holdings give banks access to non-public information that could move markets and increase the likelihood that industrial accidents will spur taxpayer bailouts, the report said... (i.e. manipulated the system). The hearing, involving bankers from Goldman, Morgan Stanley, and JPMorgan begins at 930ET...

For the fourth month in a row, the shale-revolution crushing plunge in crude prices managed to push energy costs down, with the BLS reporting that "the gasoline index fell for the fourth month in a row, declining 3.0 percent, and the indexes for natural gas and fuel oil also decreased." As a result, October CPI was unchanged from a month earlier, and up 1.7% from a year ago, below the Fed's 2.0% target. However, stripping away plunging energy prices, things were a little different, with CPI ex food and energy up 0.2%, slightly above the 0.1% expected, and up from 0.1% before. But before everyone screams deflation, here is what also happened: the shelter index, airline fares, household furnishings and operations, medical care, recreation, personal care, tobacco, and new vehicles were among the indexes that increased. And for those few who have to eat, "The index for food at home has risen 3.3 percent over the last 12 months, the largest 12-month increase since April 2012." and "The index for nonalcoholic beverages rose 0.6 percent, its largest increase since September 2012."