Archive - Jan 2014

For generating the greatest "wealth effect" and highest return of any global stock market in the world in 2013, the Caracas stock exchange, which closed the year at the ripe level of 2.7 million, is getting surprisingly little attention or love (maybe because unlike other countries, here unpleasant inflation from currency debasement is a coincident indicator resulting in such things as a shortage of toilet paper). Because after all isn't it an economist and monetarist's dream to achieve a 480% return in one year based on simply printing money?  Supposedly, the answer is no. But for whatever reason, since nobody talks about the massively successful Venezuelan stock market, which in the modern era is second only to the even more "successful" Zimbabwe stock market, it bears noting that earlier today, quietly, the Caracas stock market announced it would proceed with a 1000 for 1 stock, er, index split.

After multiple months of positive acceleration, Goldman expect the Global Leading Indicator to continue to stabilize around current levels in the coming months. The infamous Swirlogram shows that the last 3 months have seen the indicator in "slowdown" mode - which Goldman optimistically notes is on the border of 'expansion' also...and while they see no clear evidence of further acceleration, they see overall level of growth at solid levels.

While the growth of inequality in America has been heavily discussed here, it was Stan Druckenmiller's outbursts (and warnings that "from beginning to end - once markets adjust from these subsidized prices - that the wealth effect of QE will have been negative not positive") that brought it more broadly into the average American's mind. QE, taxes, income disparity, and entitlements are four major means by which wealth is transferred from the poor and the middle class to the rich. The following simple chart explains it all...

Margaret Macmillan recently warned there are dangerous parallels between the year WWI broke out and today. Pivoting off the well-know Mark Twain adage that history does not repeat itself, but does rhyme, Macmillan suggests that the one-hundredth anniversary of World War I encourages us to reflect on the “valuable warnings” of the past. The actual and potential conflicts in the year ahead are many, and some of the same structural forces that lead to the Great War a century ago will be prevalent in 2014.

Worried about being priced out of the housing market once again? Concerned that longer-term fixed rates will rise? It seems the general public, guided by the always full of fiduciary duty - mortgage broker - has reverted to old habits and is charging back into Adjustable-Rate Mortgages. As The LA Times reports, ARMs, which all but vanished during the housing bust, are back - accounting for 11.2% of homes purchased in November (double that of the year before)! While not the Option Arms of yesteryear, it would appear people, pushing for lower monthly payments, remain completely oblivious to the word "adjustable" when they shift their risk to the shorter-end. Though, as the 'experts' continue to tell us, rising rates won't affect housing negatively - not at all...

As recently as October, we joked that the "best-performing" job category in the US was also the most miserable one - i.e., "bartenders and waiters", also known as jobs which often times get paid below minimum wages and rely on the goodwill of their customers for tips to survive. And indeed, as of November, there were a record 10.4 million waiters in the US, representing a record 45 consecutive monthly increases in this job category - hardly the stuff robust recoveries are made of. However, it turns out the joke may be on us after all because as the WSJ explains, "Waiting Tables at Top-Tier Restaurants Is New Career Path for Ivy League and Culinary School Grads." It appears that gone are the days when every Ivy graduate's fast-track to stardom dream was to become a banker (or in the worst case, a corporate lawyer). And with Wall Street's increasing conversion into a utility, the aspirations of the best and the brightest will progressively shift elsewhere. But waiting tables? Well, as it turns out that's where the money is because "head waiters at top-tier restaurants can earn from $80,000 to as much as $150,000 a year including tips, according to industry executives."

Italy's anti-austerity Pitchfork movement, who described Italy as being "enslaved by wealthy Jewish bankers," has come under fire for "shamelessly recall[ing] a historical period characterised by death, violence and denial of the most elementary rights." The nation's Jewish community, writing in La Repubblica, said the Pitchfork leader's remarks demonstrate a "deeper sense of discomfort" fuelled by "the most violent and grimmest anti-Semitic stereotypes". Despite Italian stock and bond markets surging to multi-year highs, IB Times notes that mass demonstrations continue to rile the company's economy as Pitchfork followers demand the total removal of the ruling political class.

Bitcoin has a future here in Singapore, but it is a future that inevitably will be co-opted by central planning and control. The majority of locals who did not have the best sentiments regarding Bitcoin cited the lack of central control, ironically the reason in other countries why Bitcoin enjoyed its meteoric rise. Bitcoin is expected to be pilloried with payment gateways and other payment process implementation mechanisms to streamline the Bitcoin protocol into a fashion that the locals are familiarized to and prefer- a robust payment method with savings applications that is guaranteed by an actual organization against loss. Look no further than this lagging indicator, taken around the Promenade of the central business district overlooking the Marina Bay Sands casino, that Bitcoin's future in Singapore is a co-opted system run on the familiar rails of global multinational corporations.

Despite the best efforts of 330RAMP CAPITAL, US equity indices ended the first trading day of the year with the biggest loss (on that day) since 2008. Led by weakness in the high-beta indices as Trannies tumbled their most in 4 months and the S&P's biggest daily downswing in over 3 weeks. On a side-note, gas prices have never been this high on the first day of the year. VIX closed higher once again as stocks began to catch down to it's recent warnings. Bonds rallied from the open this morning (with 10Y 6bps lower in yield from its opening print) with 10Y back under 3%. EUR weakness drove the USD higher (but JPY strength weighed on stocks). The biggest moves appeared in commodities with gold and silver up nicely and WTI crude down hard.

Statewide state of emergency declared --> stay off the roads if you can #blizzard #StormWatch #NYS

— Andrew Cuomo (@NYGovCuomo) January 2, 2014

The combination of impulsive gains and corrective weakness from the late October lows at 78.99, repeated failure to hold a break of 79.95/79.82 area support and now bullish seasonals (January is the strongest month of the year for the US $ Index) all tell BofAML's Macneil Curry that the US Dollar Index is headed higher. While he remains a long-term Treasury bear, Curry warns bond bears to take a wait-and-see approach and fears a "defensive posture" may correct bond yields and stock prices lower.

2013 already saw violent unrest in some of the most stable countries in the world like Singapore and Sweden, all underpinned by absolute disgust for the status quo. Whether today or tomorrow, this year or next, there will be a reckoning. The system is far too broken to repair, it must be reset. It’s simply absurd to look at the situation objectively and presume this status quo can continue indefinitely... that this time is different… that we’re somehow special and immune to universal principles.

WTI crude is back below $95.50 - its lowest in a month - as the price of the front-month has dropped over 3% today - its biggest single-day drop since November 2012. USD strength (+0.3%) is being ignored for now by gold and silver which are jumping handily (back over $1230 and $20 respectively). US equities are suffering for the first day of the year for the first time since 2008 (which ended -38.5%) led by Russell 2000 and the Dow Transports - which is seeing its worst day in 4 months.

We leave it to everyone's supreme amusement to enjoy the Maestro's full non-mea culpa essay, but we will highlight Greenspan's two most amusing incosistencies contained in the span of a few hundred words. On one hand the former Chairman admits that "The financial crisis [...] represented an existential crisis for economic forecasting. The conventional method of predicting macroeconomic developments -- econometric modeling, the roots of which lie in the work of John Maynard Keynes -- had failed when it was needed most, much to the chagrin of economists." On the other, his solution is to do... more of the same: "if economists better integrate animal spirits into our models, we can improve our forecasting accuracy. Economic models should, when possible, measure and forecast systematic human behavior and the tendencies of corporate culture.... Forecasters may never approach the fantasy success of the Oracle of Delphi or Nostradamus, but we can surely improve on the discouraging performance of the past." So, Greenspan's solution to the failure of linear models is to... model animal spirits, or said otherwise human irrationality. Brilliant.

With tensions remaining high, the brouhaha over the 'probe' of government corruption daring to find actual corruption rolls on and now the military is complaining of bent judges in their own 'coup' trial:

*TURKISH ARMY SAYS EVIDENCE FABRICATED IN COUP TRIAL: HURRIYET
*TURKEY ARMED FORCES FILES CASE CITING PLOT AGAINST IT: HURRIYET

Add to this the hike in consumption taxes and fears over inflationary surges and the Lira has re-collapsed back to record lows against the USD and Istanbul stocks are re-tumbling.