Archive - Mar 13, 2014

As we predicted when we highlighted the cumulative decline in the control retail sales group, it was only a matter of time before the banks started cutting their Q1 GDP forecasts. Sure enough, first it was Barclays trimming its Q1 GDP tracking forecast from 2.3% to 2.2%, and now it is Goldman's turn which just cut its latest Q1 GDP forecast from 1.7% to 1.5%.

In retaliation, Russia could opt to only accept gold bullion for payment for their gas, oil and other commodity exports. This would likely lead to a sharp fall in the dollar and a surge in gold prices.

Currency wars could soon take the turn for the worst that many of us have warned of for some years.

While the sight of Russian flags, pro-Russian troops, and Russian navy ships in Crimea is now a day-to-day thing; this morning brings a new normal for the eastern Ukraine region - long lines at bank ATMs as the bank runs have begun. We noted last night the dreaded inversion of Ukraine's yield curve, the greater-than-50% yields on 3-month Ukraine government debt, and the pressures on local bank debt maturities as the ability to garner dollars cost-effectively was becoming a problem but on the heels of concerns by the head of the central bank that moving cash in Crimea was difficult, ATM withdrawal limits have been cut. People in long ATM lines are reported to be concerned because "banks are closing" but it is Deutsche Bank's comments this morning that raised many an eyebrow as they suggest that Ukraine's debt is pricing in a "burden-sharing" haircut for bondholders (which as we have seen in the past - in Cyprus - can quickly ripple up the capital structure and become a depositor haircut).

We wonder just what hedonic adjustments the BLS will use to explain away the implied inflation from this 25% increase in Amazon Prime membership fees. Prefunding the cost of friendly drone deliveries (which Tesla may soon desperately need if it wants to sell its cars direct)? We also wonder, just what the impact on Prime membership will be considering the disastrous results that Netflix suffered when it did a comparable price hike a little over two years ago, which it promptly reversed when people started abandoning the service in droves. Just how elastic is Amazon pricing? We are about to find out.

When retail sales last month came in far weaker than expected, it was the weather's fault. A month later, we find that the January retail sales were even weaker than expected, with the headline number revised from a -0.4% drop to -0.6%, the ex autos number revised from unchanged to -0.3%, and the ex autos and gas whose drop more than doubled from -0.2% to -0.5%. Oh well: one can't go back in time and force the algos to soar even more (since everyone knows bad news is great news). So how about February? Well, apparently it warmed up because despite expectations of a 0.2% increase in headline and ex auto and gas retail sales, the actual prints were 0.3% for both, beating by the tiniest of margins, yet net lower when adding the January revision. Of course, what happens in April, when the March data too is revised lower, is irrelevant - all that will matter is the current month numbers all of which recently seem to get an odd "optimism" boost that promptly fades away in no time.

On the heels of last week's surprise beat in jobless claims (amid all the weather turmoil), this week's initial claims beat by the most since November. Down 9,000 to 315,000, this is the best (lowest) claims data in over three-and-a-half months providing the Fed cover to continue Tapering as the number of people of benefits rolls overall dropped 48,000 to 2.86 million (lowest since December). In the big picture the trend of decreasing layoffs has stalled but shows no sign of improvement in the last 6 months.

For a market that is flirting with all time highs on a daily basis, the recent banker and trader suicide epidemic seems oddly out of place. And yet, it continues to claim even more victims, with the latest casuality being Edmund Reilly, 47, a trader at Midtown's Vertical Group, who as the Post reported, jumped in front of an LIRR train station yesterday at 6 am near the Syosset train station and was pronounced dead at the scene.

• China premier warns on economic slowdown as data fans stimulus talk (Reuters)
• Li says China defaults ‘unavoidable’ (FT)
• Russia Said to Ready for Iran-Style Sanctions in Worst Case (BBG)
• Rescue the tapes from the Bank of England’s dustbins  (FT)
• Obama Warns Putin of Cost to Russia for Annexing Ukraine (BBG)
• The TVIX is back: Credit Suisse VIX Note That Ran Amok in 2012 Back on Top (BBG)
• U.S. Risks National Blackout From Small-Scale Attack (WSJ)
• U.S. Investigators Suspect Missing Airplane Flew On for Hours (WSJ)
• Malaysia says no evidence missing plane flew hours after losing contact (Reuters)
• Missed Alarms and 40 Million Stolen Credit Card Numbers: How Target Blew It (BBG)
• Death Toll in NYC Building Blast Rises to Six; Search Continues (BBG)

It was another day of ugly overnight macro data, all of it ouf of China, with industrial production (8.6%, Exp. 9.5%, Last 9.7%), retail sales (11.8%, Exp. 13.5%, Last 13.1%) and fixed asset investment (17.9% YTD vs 19.4% expected) all missing badly and confirming that in a world of deleveraging, the Chinese economy will continue to sputter. Which is precisely what the "bad news is good news" algos needs and why futures levitated overnight: only this time instead of latching on to the USDJPY correlation pair, it was the AUDJPY which surged after Australia - that Chinese economic derivative - posted its third best monthly full-time jobs surge in history! One can be certain that won't last. But for now it has served its purpose and futures are once again green. How much longer will the disconnect between deteriorating global macro conditions and rising global markets continue, nobody knows, but sooner rather than later the central planner punch bowl will be pulled and the moment of price discovery truth will come. It will be a doozy.

Simply ending the corporate lives of Fannie Mae and Freddie Mac as the Johnson-Crapo proposal envisions is not sufficient