Archive - Jan 2014

With 10Y Treasury yields pressing up agaist 3.00% once again (and equities shrugging off the taper-confirming news from ADP), precious metals are under pressure. Despite a few positive days, the last two have seen silver give back all 2014 gains and push back into the red for the year. Gold remains modestly green (still outperforming stocks for now).

The war of words (and deeds) is once again escalating between China and Japan. As we detailed last night, this has been a long time coming and as Reuters reports today took a further turn for the worse. In an op-ed in Britain's Daily Telegraph, the Chinese ambassador to Britain, Liu Xiaoming, wrote last week: "If militarism is like the haunting Voldemort of Japan, the Yasukuni shrine in Tokyo is a kind of horcrux, representing the darkest parts of that nation's soul." Liu's commentary was followed by another published on Sunday by his Japanese counterpart, Keiichi Hayashi, in the same newspaper, headlined: "China risks becoming Asia's Voldemort". As was noted, "Five thousand years of traditional virtues have been turned into this?"

Equity markets appear wholly dissatisfied with this morning's 'good' news and are unsure whether this taper-on data is confidence-inspiring or liquidty-sapping. The ADP print appears to confirm a hgher probability of another $10 billion taper. Bond yields jumped higher, the USD jumped higher, gold dropped, and stocks are limping to the day's lows...

Unless ADP is forced to revise its December print following the BLS report on Friday (which in keeping with the baffle with BS tradition should be a major disappointment), the Fed will have no choice but to taper by another $10 billion at the next opportunity, because moments ago ADP, which for all intents and purposes is merely noise until it has revised its data to comply with Nonfarm Payroll reports, announced that in December, some 238K jobs were added in the US, well above the 200K expected, and the highest monthly print since November 2012.

There are a number of reasons that silver should revert to the long term historical mean but the two primary ones are the fact that geologically in the earths crust there are fifteen parts of silver to every one part of gold. The other reason is that silver is used in many industrial, technological and medical devices and applications today and since the Industrial Revolution a huge amount of silver has been used up. Silver is like oil in that respect, and unlike gold, a lot of silver has been consumed and is gone forever. 

The polar vortex came, saw, and is on its way out, and now comes the time for the damage report. As Reuters reports, "At least nine deaths have been reported across the country connected with the polar air mass that swept over North America during the past few days. Authorities have put about half of the United States under a wind chill warning or cold weather advisory.... Homeless shelters and public buildings took in people who were freezing outside. Daniel Dashner, a 33-year-old homeless man who typically sleeps under a bridge on Milwaukee's south side, said he opted to seek a spot at a shelter on Monday night. "Usually if I have four or five blankets, I can stay pretty warm, but when that wind is blowing, I don't care how many blankets I have, the wind blows right through me," he said, as temperatures dropped to minus 6 degrees Fahrenheit (minus 21 degrees Celsius)." On the other hand, there was some levity in the newsflow, when as AP reported, an escape inmate opted for the familiar warmth of prison and turned himself in.

There has been much speculation recently about some immaculately conceived Spanish economic recovery. And while it has certainly sent the local Ibex stock market soaring, we fail to see any indication of such a recovery, at least in official economic data. The latest example being, of course, today's European unemployment for November, which at the Euroarea level remained flat at 12.1%, which also is the all time record high following a prior revision. However, what is more troubling is that according to the official European statistics keeper, Spanish unemployment in November was 26.7%: tied for the all time high seen in October and hardly an indicator of some imminent economic renaissance. There is, of course, always December - that month in the New Normal when hiring really picks up. But where things get really bad is when one looks at Spain's youth unemployment. At 57.7% in November, nearly two in three Spaniards under 25 had no job, and the nail in the coffin for the "recovery" is that this rate is now well above the latest update from Greece, where the youth unemployment was "only" 54.8% as of September.

A Banzai7 fraudspective...

• Here comes JPM's next multibillion legal reserve: Federal Probe Targets Banks Over Bonds (WSJ)
• Mulally Bows Out of Microsoft CEO Race, Staying at Ford (BBG)
• United States sending more troops and tanks to South Korea (Reuters)
• Eurozone unemployment sticks at record high (FT)
• China-Japan 'Voldemort' attacks up ante in propaganda war (Reuters)
• Alternative Lenders Peddle Pricey Commercial Loans (WSJ)
• John McAfee: glad Intel dropping name from security software (Reuters)
• Jobless Benefits Bill Stays Alive Amid Talks on Offsets (BBG)
• Chicago Colder Than South Pole as Frigid Air Clamps Down (BBG)
• Former Miss Venezuela shot dead in attempted robbery (Reuters)

Some better than expected economic news out of Europe, Greek 10 Year yields dropping to 7.65% or the lowest since May 2010, and futures are... red? Alas, such is life in a world in which the S&P500, aka the E-mini, is simply a derivative of the Yen funding currency pairs, where the USDJPY touched on 105 after a straight line diagonal move only to sell off in recent trading. Heading into the North American open, stocks in Europe are seen mixed, with peripheral stock indices outperforming, buoyed by the prospect of Portugal echoing yesterday’s Irish NTMA return to capital markets with its 10y bond syndication. As such, despite the cautious sentiment, financials led the move higher, with Italian banks gaining for 4th session as IT/GE 10y spread narrowed to its tightest level since early July 2011. Of note, FTSE-100 index underperformed its peers since the get-go, with retailers and tobacco names under pressure. In spite of opening higher by over 3%, Sainsbury's shares have since reversed and are seen lower by almost 2% after co. CFO said that he expects FY LFL sales to be just below 1% and expects Q4 to be similar to Q3. Elsewhere, tobacco names came under selling pressure following reports that China is planning a ban on smoking in public by year's end.

I tried to create a “Kudos List” as well but really couldn’t. 

This system works as long as debt continues to stay cheap. However, in the last 12 months the Fed has definitively crossed the point of no return with its policies. It is not just a matter of timing before this debt bubble bursts.

Recently, the FBI made a significant change to its self-proclaimed primary focus in its fact sheet from “law enforcement” to “national security.” This change merely confirms what I and countless others have claimed to be true for quite some time. That the entire regulatory, security and intelligence apparatus of these United States has been redirected away from protecting the Constitution and the rule of law, toward a narrow focus on protecting the economic and social positions of the oligarch class at all costs under the guise of a “war on terror.”

While Abe begs (and cajoles) business leaders to raise wages (whether it makes economic sense or not), his plunging approval rating could have something to do with the ongoing squeeze the average gadget-freak Joe-san consumer is experiencing. Bloomberg reports, for the first time in 21 years, mobile phone prices are rising. The typical deflationary path of technological improvement is being overwhelmed by JPY weakness. "Inflation is spilling across a range of products," warns a Dai-Ichi economist, adding that the weakening yen is driving up prices as "Japan is importing more final goods as production shifts overseas."

Some simple bond math: rising rates lead to lower prices. Holders of rate products, once they anticipate that future prices will fall, sell today to minimize losses. So the question: when the selling of the world's debt begins (and accelerates), especially with everyone urged by central bankers to shun bonds and go for "undervalued" stocks, who buys? We ask because, as the chart below shows, there is quite a bit to sell.