Archive - Feb 2014

According to the Economic Policy Institute, a Washington think tank supported by organized labor, the answer to generating up to 6 million more jobs is as simple as ending global currency manipulation. But not in the sense of ramping USDJPY or AUDUSD at key market inflection points which mostly benefits such FX-rigging chatrooms as "the Cartel", no: they are thinking more big picture, in the "central bank manipulation sense." The report says that "several foreign countries devalue their currencies to make their products cheaper, making it difficult for U.S. manufacturers to compete, the report said." In essence what the group suggests is that the US currency is overvalued relative to the rest of the world, and that by "realigning exchange rates, U.S. trade deficits would be reduced by up to $500 billion per year by 2015. Such a move would increase U.S. gross domestic product by up to $720 billion per year and create up to 5.8 million jobs, the report said." Said otherwise: stop foreign currency manipulation, but allow and encourage the US to keep pushing its own currency even lower.

That the bulk of Americans (especially those 4+ million whose insurance policies have recently been cancelled as a result of the ACA) have to pay more for healthcare as a result of Obamacare, is now largely accepted and well-known. But did you know that the cost of Obamacare is slowly metastasizing to other places? Such as your restaurant bill.

Presenting Exhibit A.

Just like the rental bubble whose bursting we chronicled here just last week, so the institutional bubble has just popped, which we know courtesy of RealtyTrac data reporting that institutional investors — defined as entities purchasing at least 10 properties in a calendar year — accounted for 5.2 percent of all U.S. residential property sales in January, down from 7.9 percent in December and down from 8.2 percent in January 2013. This was the biggest one month plunge in history. It gets worse: the January share of institutional investor purchases represented the lowest monthly level since March 2012 — a 22-month low.

The lucky number for the S&P500 was four, which after three aborted attempts to take out the January 15 all time high, finally succeeded on the fourth try materializing in a furious buying panic in Spoos in the last minutes of trading. However, in terms of catalyst, there was absolutely nothing to push the market to new highs: durable goods were a disappointment as we explained earlier (and led banks such as Barclays to further lower their GDP forecast for the year), while initial claims rose to the highest of the year. Which leaves only Yellen as the factor, although as can be seen on the chart below, one can just as easily say once US traders walked in today, the channel lift algo was activated, and with Spoos meandering all day in a straight line within the channel, finally burst through to highs with the closing print.

A tournament of shadow boxing...

With European peripheral bond yields collapsing every single day to new all time lows (primarily driven by Europe's near-certainty that a US-style QE is imminent as we first showed here in November, despite Mario Draghi's own words from November 2011 that a QE intervention is virtually impossible), increasingly more of Europe is trading just as safe, if not more, as the United States. And in keeping with the analogies, considering a major US metropolitan center, Detroit, recently went bankrupt, it is only fair that Europe should sacrifice one of its own historic cities to the gods of negative cash flows. The city in question, Rome, which as the WSJ reports, is "teetering on the brink of a Detroit-style bankruptcy."

NSA Whistleblower Says: "This Is Just One Of The Ways To Make Controlling People Possible.  Standard KGB/Stasi Tactics."

Goodbye SAC Capital. Hello SEC Capital.

Russia may be awaiting a diplomatic resolution of the Ukraine crisis, but we wouldn't hold our breath especially with the deposed president Yanukovich set to conduct a press conference tomorrow from Russia's Rostov-on-Don at 5pm local time, where we hardly anticipate a scaling back of the escalation in what is sure to not be an abdication from power. Instead, Putin continues to prepare for the worst and is openly signalling to the West that if he has to fight to regain influence in the Ukraine, he will, as a top Kremlin politician warned last week. As such it was not surprising to read that two Russian warships, the Minsk and the Kaliningrad which last week were sent out on deployment around Syria, crossed back into the Black Sea, most likely in direction Sevastopol, as the build up of Russian forces in the Crimea continues.

Just like in yesterday's scorching 5 Year auction, demand for today's $29 billion in 7 Year paper was blistering, with a yield of 2.105% stopped through the When Issued 2.108%, and the lowest since November as appetite for the belly of the curve is the highest in months. The Bid to Cover was also very strong at 2.723, the highest since November 2012, and like in other shorter-maturity auctions, has reverse the recent declining trend in BTCs. But the most notable features in the conclude auction, the bulk of which will naturally be quickly flipped back to the Fed, is that while Indirects took down 41.12% or spot on with the 12 Month average, and Dealers were left with 34.28%, below the 40.0% TTM average, it left Directs with 24.6% - this was the highest Direct take down in the history of the bond. The Primary Dealers, who have been openly complaining about Direct Bidder participation in bond auctions in recent weeks, will certainly not be happy about this particular development as increasingly more paper goes straight into the hands of Direct bidders.

Missed today's follow up Janet Yellen testimony before the Senate Banking Committee? Don't worry: you didn't miss much, all the bases were covered including winter weather during the winter, the Fed's complete cluelessness about what "full employment" means (because the definition changed thoroughly from December 2012 when it was 6.5%), what the "quantitative" definition of quantitive easing is (Yellen has no idea), why the Fed isn't subject to a haircut on its MBS holdings while all the other banks have to suffer under the intolerable Basel III 15% haircut (something to do with illiquidity of MBS, and specifically - something to do with the fact that the Fed has soaked up more than all net issuance of MBS in the past year, but don't worry - the Fed is on top of it), and, of course, Bitcoin. For everything else, here is Goldman's post-mortem of Yellen's Day Two testimony.

A national average sounds an alarm: investors that drove up the housing market are bailing out

While the "developed" world scrambles to find a way to provide Ukraine with a bailout in such a way that Russia doesn't turn off the gas, Ukraine is doing some scrambling of its own to assure the local banks, which have been plagued by both bank runs and a collapse in the currency to record lows over the past few days, that it will be there to provide funding on a business as usual basis. Itar-Tass reports that "Ukrainian banks will be provided with necessary liquid assets, including cash." But there is a condition: the funding will only come "if they will remain under open control of the National Bank of Ukraine, the newly-appointed NBU Chairman Stepan Kubiv is quoted as saying on the bank’s official website."

Is the groundwork for the "transitioning out" of the US Attorney General being laid? From Reuters: U.S. Attorney General Eric Holder was taken to a Washington, D.C., hospital as a precaution on Thursday after he felt faint and was short of breath during a morning meeting with his staff, his office said in a statement. "He is currently resting comfortably and in good condition. He is alert and conversing with his doctors," according to the statement. Please get well soon Eric: how else will this nation sleep easy at night knowing there are still so many "Too Big To Prosecute" banks out there whose wrists you still have to slap?

Yesterday's "better than expected" New Home sales served as the "good news" pre-market boost to send futures ramping higher once again, if not enough to cause a fresh all time high. Here is what really happened when one spreads the numbers, courtesy of Mark Hanson's housing blog. "If all of the 4 regions were in this morning's New Home Sales print were rounded down to the nearest thousand by the Census Bureau vs up, it would subtract 4k sales, or about 12%.  Even with the massive January seasonal adjustments, this would result in a SAAR headline print of 428k, or flat YoY vs the up 10% reported.   If only the South was flat YoY like the other regions, the same thing would occur. "