Archive - Jan 2014

BANZAI7 FOOD AND BEVERAGE WARNING 

A Reuters report this week noted that nearly 3.33 million hectares (eight million acres) of Chinese farmland are too polluted to grow crops. The article, which was re-posted by the state-run China Daily news site, quoted Wang Shiyuan, China’s vice minister of land and resources. Wang says that the government is determined to address the issue of polluted farmland, and will commit “tens of billions of yuan” each year to help return the land to a usable state. Food security is a major concern for Chinese leaders, and worries over this issue already had the potential to severely slow down other planned reforms such as urbanization.

With over 60% of those surveyed by Investors Intelligence now bullish, positive sentiment (or crowding, depending on your perspective) has risen once again and now to levels that are practically the highest ever. Perhaps even more crucial is the absolute dearth of bears leaving the Bull-Bear ratio at a record-busting level over 4x. The simple question, as we asked before, is - what happens when there's no one left to buy from?

All the pundits who preach an economic recovery in the US always fall strangely silent when asked to share their thoughts on the following chart (taken from the St. Louis Fed), showing the annual change in real disposable income per capita in the US. What seems to stump them most is that aside from the 2012 year end aberration (due to accelerated distribution of dividends ahead of the 2013 tax hikes) is that in November the series finally posted its first Y/Y decline (-0.1%) since the Lehman collapse. But as the chart notes, the data is "per capita" and as everyone knows, under the New Normal, some "per capitas" are more equal than other "per capitas." Enter the billionaires. As Bloomberg summarizes, "The richest people on the planet got even richer in 2013, adding $524 billion to their collective net worth, according to the Bloomberg Billionaires Index, a daily ranking of the world’s 300 wealthiest individuals. The aggregate net worth of the world’s top billionaires stood at $3.7 trillion at the market close on Dec. 31, according to the ranking. "The rich will keep getting richer in 2014," John Catsimatidis, the billionaire founder of real estate and energy conglomerate Red Apple Group Inc., said in a telephone interview from his New York office.

As we have discussed in depth previously (2 years ago here as "muddle through has failed" and most recently here as the IMF discussed a "one-off" wealth tax), a confiscation (akin to Cyprus overnight debacle) is coming and Martin Armstrong believes sooner than most think. Anyone who thinks it is a fantasy that government will simply just confiscate 10% of everyone’s accounts in Europe better have another look at the fool they see in the mirror staring back at them.

Forget "the 1%-ers", meet the 3%-ers. As US Treasuries sell-off and European bonds continues to surge, the 3% handle on government debt is becoming a crowded trade with the following six nations now yielding between 3 and 4%... US, UK, Ireland, Israel, and drum roll please... Italy and Spain!

As 2013 comes to a close, efforts to revive growth in the world’s most influential economies – with the exception of the eurozone – are having a beneficial effect worldwide. However, All of the looming problems for the global economy are political in character; and there are some eerie resemblances with the financial conditions that prevailed in the US in the years preceding the crash of 2008.

After beating expectations for 6 months in a row, the whisper expectations for December's Manufacturing ISM was a small miss of the 56.8 consensus print. Instead, the US inventory build up in the quarter boosted the ISM for one more month with the headline print of 57.0 beating expectations modestly, if recording the first decline in seven months, down from November's 57.3. There was little surprise in the internals, which saw New Orders (64.2 vs 63.6), Employment (56.9 vs 56.5) and Prices Paid (53.5 vs 52.5) all rise modestly. The New Orders Index increased in December by 0.6 percentage point to 64.2 percent, which is its highest reading since April 2010. The Employment reading was the highest since June 2011. Like the Chicago PMI previously, inventories dipped into contraction territory, if not as violently as in Chicago, down from 50.5 to 47.0. Judging by the boost to the US economy from the government shutdown, perhaps Congress should close more often: like permanently?

The late-day exuberance from New Year's Eve has been dismissed as JPY strength has dragged stocks to one-week lows this morning (catching down to VIX's warnings from last week). Gold ($1225) and Silver ($20) are notably higher this morning as WTI crude is significantly lower (back under $97). Treasuries are modestly bid from earlier levels with 10Y holding 3.00%.

Despite the supremacy of Fed hubris and punter confidence in the Fed's Frankenstein Economy, the likelihood of some tail risk emerging out of nowhere is rising. Indeed, the very confidence in central planners, i.e. that the Fed is now the ultimate power in the Universe, is a prerequisite for collapse.

"We are deeply sorry for this whole affair," said Wal-Mart's China president after the world's largest retailer recalled donkey meat sold at some outlets in China after tests showed the product contained the DNA of other animals - including fox. "It is a deep lesson (for us) that we need to continue to increase investment in supplier management," repeat-offender Wal-Mart added as Reuters reports the tainted "five-spice" donkey meat may mean "wealthy shoppers will start to lose the trust [in Wal-Mart's brand] they had before." Donkey meat is a popular snack in some areas of China, but as one bemused customer noted, oddly, "Isn't fox meat more expensive than donkey meat anyway?"

The now ubiquitous prior upward revision helped headlines crow of 'another' decline in initial jobless claims this week. Initial claims beat expectation of 344k with a 339k print, whis is now a drop from a previously reported 338k that is now revised up to 341k... all makes sense, right? It seems claims have stabilized somewhat after the few weeks of glitches and shutdown SNAFUs and the downtrend appears to have stalled as these levels of claims are at the same level as 5 months ago. Bear in mind this is the last print for 2013 (not first print of 2014 data) and with 1,391,297 people on Emergency benefits due to start 'tapering' this week, we can only imagine the 'glitches' that will occur going forward.

A few days ago Goldman pointed out an interesting observation: "if you were an index investor and weren’t long Jan 1st, you underperformed this year." To be sure, index investors have been well aware of this self-fulfilling prophecy. As it turns out, one can extend this pattern not only to 2013 but virtually every year in the Fed's centrally-planned "abnormal", as can be seen on the chart below: adding up the performance of just the first trading day of the year in the S&P shows a total outperformance of 10% across the past five years.

• Threatening snowstorm may be early test for N.Y. Mayor de Blasio (Reuters), U.S. Northeast Threatened With Blizzard, Travel Delays (BBG)
• Scarred U.S. consumers a hard sell for traditional retail (Reuters)
• Edward Snowden, Whistle-Blower (NYT)
• A Few Brave Investors Scored Huge, Market-Beating Wins (WSJ)
• Fiat gets full control of Chrysler for $4.35 billion (Reuters)
• Billions Vanish in Kazakh Banking Scandal (WSJ)
• SAC’s Cohen Focus of Trial as Martoma Rebuffs U.S. (BBG)
• World's first state-licensed marijuana retailers open doors in Colorado (Reuters)
• Hyundai, Kia face fading growth as currency tides buoy Japan rivals (Reuters)
• Bond investors braced for new year shock (FT)
• Putin vows total destruction of 'terrorists' after bombings (AFP)