Archive - Mar 12, 2014

The Fed and the other major central banks have been planting time bombs all over the global financial system for years, but especially since their post-crisis money printing spree incepted in the fall of 2008.  Now comes a new leader to the Eccles Building who is not only bubble-blind like her two predecessors, but is also apparently bubble-mute. Janet Yellen is pleased to speak of financial bubbles as a “misalignment of asset prices,” and professes not to espy any on the horizon. Actually, the Fed’s bubble blindness stems from even worse than servility. The problem is an irredeemably flawed monetary doctrine that tracks, targets and aims to goose Keynesian GDP flows using the crude tools of central banking. Not surprisingly, therefore, our monetary central planners are always, well, surprised, when financial fire storms break-out. Even now, after more than a half-dozen collapses since the Greenspan era of Bubble Finance incepted in 1987, they don’t recognize that it is they who are carrying what amounts to monetary gas cans.

The last few days have seen credit markets weaken drastically, Treasuries rallying, precious metals bid, and copper prices collapsing... but amid all of that stocks are "staying the course." Perhaps the following 3 charts of the last few days will explain where that magical bid is coming from...

It would appear record inventories of Iron ore and plunging prices due to China's shadow-banking unwind have started to weigh on the all-too-important-when-it-is-going-up-but-let's-blame-supply-when-dropping Baltic Dry Index. With the worst start to a year in over a decade, the recent recovery in prices provided faint hope that the worst of the global trade collapse was over... however, today's 8% plunge - on par with the biggest drops in the last 6 years - suggests things are far from self-sustaining. Still think we are insulated from the arcane China shadow-banking system, which suddenly everyone is an expert of suddenly? Think again.

Screw this!

For the 2nd day in a row, US Treasuries and precious metals were well bid as it seems safe-havens were in strong demand. EUR strength (repatriation flows after risk-aversion in Europe from Ukraine - EURUSD closed at highest since Oct 11) drove the USD Index lower (-0.15% on the week) and while gold and silver benefitted from that modest weakness they are now up 2% on the week (with gold above $1365 and at 6-month highs). Oil slipped (on SPR release talk) and copper lifted modestly (as Yuan strengthen very mildly). Credit markets have lost all gains from Putin. Once again the magic elixir of the US day-session open spiked AUDJPY and supported stocks up to unchanged from overnight weakness but once Europe close (well in DST terms) US equities drifted sideways to lower leaving the Dow and S&P red into the last hour.  Another late-day scramble to sell VIX managed to get the S&P just green!

Yes, rates can be raised too. Just out from the Reserve Bank of New Zealand which just hiked rates by 25bps to 2.75%, as was largely expected.

Wall Street bonuses (on average) in 2013 rose 15% to the highest since 2007. As OSC Tom DiNapoli notes, "Securities industry employees took home significantly higher bonuses on average... although profits were lower than the prior year." In fact, as we noted earlier, profits at the banks fell 30%. Average compensation for securities industry professionals in New York City ($360,700) were 5.2 times greater than the rest of the private sector ($69,200). Thank You Ben...

Despite the relentless protests of Kiev, and of course the G7 group of world's most indebted nations, in the past two weeks Vladimir Putin once again succeeded in outplaying the west and annexed the Crimea peninsula without firing a single shot (granted there is still potential for material situational deterioration, one which would involve military participation by NATO whose outcome is not exactly clear). The market has "priced in" as much, with prevailing consensus now dictating that Russia will preserve its foothold in the Crimea however without additional attempts for annexation: certainly Poland is hoping and praying as much. However, as the following photos taken on the Russian side of East Ukraine, next to Belgorod, the Russian airborne troops ("VDV") are now piling up, only not in Crimea, which needs no further Russian military presence, but ostensibly to prepare for the next part of the annexation: that of Russian-speaking east Ukraine.

Does anything about 2014 remind you of 2008? The long lists of visible stress in the global financial system and the almost laughably hollow assurances that there are no bubbles, everything is under control, etc. etc. etc.  certainly remind me of the late-2007-early 2008 period when the subprime mortgage meltdown was already visible and officialdom from Federal Reserve chairman Alan Greenspan on down were mounting the bully pulpit at every opportunity to declare that there was no bubble in housing and the system was easily able to handle little things like defaulting mortgages. The party, once again, is clearly ending and raises the question: "If asset bubbles no longer boost full-time employment or incomes across the board, what is the broad-based, “social good” justification for inflating them?"

As is widely known, Ukraine's acting post-coup PM Arseniy Yatsenuk is currently in the US and holding heating talks with president Obama on just how to define the "costs" to Russia should Putin conclude his annexation of the Crimea this weekend in a way that the Russian leader will finally pay attention. As was less known, after his meeting, at 8 pm tonight, the PM was supposed to hold a press conference at the National Press Club.  As of moments ago, this propaganda meet and greet has been cancelled.

• DUE TO A SCHEDULING CHANGE, THE PRIME MINISTER HAS CANCELED THIS EVENT

Scheduling change? Really? Did Yatsenyuk ask Obama, in passing, to show him where the Ukraine gold, which as we reported a few days ago was rumored to have been airlifted to the NY Fed, which resulted in a less than pleasant response by the US president?

Yesterday we highlighted the dot-com-esque surge in earnings-less IPOs in the last few months. Today we point out two more Yellen-ignoring bubble-implying charts that must surely be ignored by the cognoscenti of all-knowing stock market gurus.

HERBALIFE RECEIVED TODAY A CIVIL INVESTIGATIVE DEMAND FROM FTC
HERBALIFE SAYS IT'S CONFIDENT IT'S IN COMPLIANCE
HERBALIFE COMMENTS ON FTC PROBE, WELCOME INQUIRY
HERBALIFE WON'T FURTHER COMMENT UNTIL MATERIAL DEVELOPMENTS

US equities surged... Japanese stocks soared.. and Europe recovered greatly but on a risk-adjusted-return basis, Goldman Sachs notes, nothing beat Bitcoin in 2013...

Moments ago the Treasury sold $21 billion in benchmark OTRs in the form of a 9-year-11-month reopening of Cusip B66, in a whopper of an auction that saw the high yield of 2.729% price 1.4 bps through the 2.743% When Issued. But more than just blistering demand at the pricing, all the internals were solid across the board: the Bid to Cover of 2.92x was well above the 2.54x from February, and the 2.68x TTM average. In fact, this was the highest BTC since March of last year. And in keeping with one year anniversary records, the Dealer Award was a paltry 29.1% which also was the lowest in a year. Indirects were 43.4%, down from 49.7% in February, which means that Direct soared, and sure enough they did, from 16.2% to 27.5%. Overall a stellar auction, and one confirming that the smart money continues to prefer allocation to fixed income, instead of believing the latest "growth stories" explaining away the second coming of the dot com bubble in Bernanke's centrally-planned farce of a market.

"Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending" - Ben Bernanke, 2010 But history suggests the opposite: it is higher savings rates which lead to economic prosperity. Examine any economic success story such as modern China, nineteenth century America, or post-World War II Japan and South Korea: did their economic rise derive from unbridled consumption, or strict frugality? The answer is self-evident: it is the savings from the curtailment of consumption, combined with minimal government involvement in economic affairs, which generates economic growth.