Archive - Feb 2014

Now that Bitcoin exchange Mt.Gox has terminally discredited itself following the latest, and likely last, withdrawal halt announced late last week which sent the value of Bitcoin tumbling by 25%, Bitcoin traders are left with just two exchange options on which to transact: BTC-e and Bitstamp. And for those using the former to buy and sell the virtual digital currency, things went from bad to worse a few short hours ago, when Bitcoin had its very own "Waddell and Reed" moment, when the price of Bitcoin cratered by over 80% in the span of seconds, after a modest block of just under 6000 Bitcoins sent the price plunging from over $600 to $102.

The most notable event in this traditionally quiet post-payrolls week is Janet Yellen's Humphrey Hawkins testimony before Congress set for mid-week. In terms of economic data releases, the US retail sales (Exp. 0.05%) is on Thursday and consumer sentiment survey is on Friday (consensus 80.5). We also have IP numbers from Euro Area countries and the US. Most recent external account statistics are released from Japan, China, India and Turkey. It is also interesting to track CPI data in Germany, Spain and India, given the ECB and RBI currently face diverging inflation challenges and may be forced into further action. Finally, we have Q4 GDP data from the Euro Area economies (Friday).

• Yellen's first test (Reuters)
• Let weak banks die, says eurozone super-regulator (FT)
• Yellen, Carney Face Explaining Policy as Benchmarks Near (BBG)
• Commerzbank Said Seeking Debt Buyers in $6.8 Billion Spain Exit (BBG)
• Junk Yield Premiums Soar on China’s Looming First Default (BBG)
• Millions Trapped in Health-Law Coverage Gap (WSJ)
• Mandel Tops Best-Earning Hedge Funds for Clients in 2013 (BBG)
• Swiss Brace for Sour EU Relations After Immigration Vote (BBG)
• Detroit Bankruptcy Talks to Resume (WSJ)

Chopped him up and Fed him to the lions!

After Friday's surge fest on weaker than expected news - perhaps expecting a tapering of the taper despite everyone screaming from the rooftops the Fed will never adjust monetary policy based on snowfall levels - overnight the carry trade drifted lower and pulled the correlated US equity markets down with it. Why? Who knows - after Friday's choreographed performance it is once again clear there is no connection between newsflow, fundamentals and what various algos decide to do.  So (lack of) reasons aside, following a mainly positive close in Asia which was simply catching up to the US exuberance from Friday, European equities have followed suit and traded higher from the get-go with the consumer goods sector leading the way after being boosted by Nestle and L'Oreal shares who were seen higher after reports that Nestle is looking at ways to reduce its USD 30bln stake in L'Oreal. The tech sector is also seeing outperformance following reports that Nokia and HTC have signed a patent and technology pact; all patent litigation between companies is dismissed. Elsewhere, the utilities sector is being put under pressure after reports that UK Energy Secretary Ed Davey urged industry watchdog Ofgem to examine the profits being made by  the big six energy companies through supplying gas, saying that Centrica's British Gas arm is too profitable.

Argentina is a country re-entering crisis territory it knows too well. The country has defaulted on its sovereign debt three times in the past 32 years and looks poised to do so again soon. Its currency, the peso, devalued by more than 20% in January alone. Inflation is currently running at 25%. Argentina's budget deficit is exploding, and, based on credit default swap rates, the market is placing an 85% chance of a sovereign default within the next five years. Want to know what it's like living through a currency collapse? Argentina is providing us with a real-time window.

By hosting the Winter Olympics in Sochi, Russia has brought a surge of international attention to the state of its economy, its interethnic relations, its domestic politics, and its foreign policy. Already much of the scrutiny has become unwelcome. The reluctance of many foreign leaders to come to Sochi provides a convenient scorecard by which to evaluate Russia’s global standing. Corruption, terrorism, human rights protests, high-level no-shows—all these represent ways in which the Sochi Olympics have embarrassed Putin. Yet in each case, the problem goes well beyond any connection to the Games. Each reflects a major tension in the system that Putin has created...

UBS' George Magnus believes the next global economic "crisis"' lightning rod will be the emerging markets and as Jim Rogers tells BoomBust's Erin Ade in this brief interview, "the emerging market crisis has only just begun." While Rogers is careful to add that there are lots of emerging markets - "some better than others;" he warns that "there are some serious problems out there and they are going to get worse." Who is to blame? The Fed, of course - "by driving rates so low and providing as much liquidity as anyone in the world could want, the EMs have borrowed to cover up their real problems... be worried."

For a few brief weeks, there was hope among the millions of Japanese that do not love Shinzo Abe as two former premiers entered the race for governor of Tokyo on a zero nuclear-power platform. Today, as The Economist notes, those hopes melted away as quickly as the snow which had blanketed Tokyo on the eve of the vote. The race was won handily by Yoichi Masuzoe - the "women are abnormal during their periods" pro-nuclear, Abe-apologist that personifies Japan’s gender gap. Perhaps Subculturist sums it up best: once again, Japan has shown us that with enough voter apathy (3rd lowest turnout on record), a compliant media, and the connections and funding of the nuclear industry, that any middle-aged asshole guy can be the leader of one of Japan’s largest city-states.

Much has been said about the January Non-farm payrolls number, which rose by 113K on expectations of a 180K increase, most of which has been focused on the US atmospheric conditions during the winter. There is a problem with those numbers: they don't really exist (as for the non-impact of "the weather" on jobs we showed previously that the number of people "not at work due to weather" as calculated by the BLS itself. this winter was lower than 2008, 2009, 2010, 2011 and 2012 - so much for historic winter weather). So what really happened in January? For the real answer we have to go to the BLS' non-seasonally adjusted data series. It is here that we find that in January, some 2.870 million real, actual jobs were lost, not gained. Putting this further in perspective, the number of NSA jobs losses in January 2014 was greater than in January of 2013, 2012, 2011 and tied that of 2010. In fact only during the peak of the depression in January 2009 was there a greater NSA drop in the first month of the year when 3.691 million jobs were lost.

Low-wage workers clocked the shortest workweek on record in December - even shorter than at the depth of the recession, new Labor Department data showed Friday. The figures underscore concerns about the Obamacare employer insurance mandate's impact on the work hours and incomes of low-wage earners. Still, as Krugman told Colbert recently, he's "ok with a little bit of wealth redstribution from people who have been lucky to people who are unlucky."

"Stay defensive," warns BofAML's Macneil Curry. While risk assets ended last week on a very strong note, with the S&P500 putting in its best 2 day performance since October; the weight of evidence says that new S&P500 lows are coming and that risk assets should suffer in the weeks ahead. From the S&P500’s impulsive decline from 1850, to negative February seasonals, to deteriorating equity market breadth (the percent of NYSE stocks trading above their 200d avg is at its lowest since Oct'12); it should pay to remain defensive. In the week ahead we look for a top into the 1800/1823 area before the downtrend resumes for 1711/1686; and stay bullish bonds.

While China (or Russia) are held up as the world's most corrupt among developed nations among the status-quo-huggers, it would seem there are two other nations that dominate when it comes to getting caught. Europe paid more in fines  (in fact double the US and 10 times China) for price-fixing, bid-rigging, and other anti-trust abuses in 2013. So why would we believe them that 'recovery' is right around the corner?

Now that the full court press to refute the findings of the CBO report which, as we reported, confirmed what was largely known - that as a result of Obamacare, the strapped US economy will have even fewer workers as millions will fall back on welfare state entitlements which make hard work obsolete - has failed, it is time for the propaganda to take a different track: one where not having a job, and in fact losing it due to Obamacare, is hailed as an act of nobility. Sure enough, here comes one of the administration's favorites, the Bezos Times, with "They quit their jobs, thanks to health-care law" which does largely as its name suggests: highlights just how "enabling" and "liberating" Obamacare is for one's life, once a person is no longer burdened by something as trivial as a job.