Archive - Mar 26, 2014

It appears that Walmart has admitted the potentially severe adverse impact a reduction in food stamp payments could have on its bottom line. This shouldn’t be a surprise to anyone as we have written about this many, many times. Most notably here McDonald’s Math: You Can’t Survive Working for Us. But now, we have further evidence of this disturbing economic trend straight from the horse’s mouth: Walmart. Simply put, Who’s paying for Wal-Mart’s addiction to paying its employees less than a living wage? You are.

Another year, another failure by Citigroup to i) pass the Fed's stress test and ii) be able to stop investing cash in such idiotic fundamental concepts as CapEx, and instead reward activist shareholders with increased dividends and buybacks. As the WSJ reports, Citigroup "failed to get Federal Reserve approval to reward investors with dividends and stock buybacks, a significant blow to Chief Executive Michael Corbat's effort to bolster the bank's reputation following a 2008 government rescue." Hardly surprising for a bank which effectively was wiped out in the crisis and which only survived thanks to the Fed-backed crammed-up, spinoff of billions of toxic assets into a bank bank, however certainly surprising for a bank that is supposed to be "fixed" five years into a "recovery." What's worse, the stock is now trading below the infamous $5 level on a pre-split adjustment level - the same split that was supposed to at least optically, give the impression that things at Citi are ok. Turns out optics is only half the answer.

30Y yields are now over 10bps below post-Yellen spike highs as growth-hope-driven US equities were monkey-hammered in another pump-and-dump deja vu day - with one difference - no late-day bounce to provide solace for the bulls. The Nasdaq and Russell 2000 are down over 3.5% from Yellen; Biotechs broke to new lows (down over 14% and below the 100DMA); momo names were slammed (FB) as King IPO's and lost over 15% on the day. The Nasdaq and Russell have joined the Dow in the red year-to-date, S&P and Trannies barely positive. The USD lost ground on the day after early strength. Gold, silver, and copper fell notably. VIX jumped from 2-month lows to back over 15%. USDJPY was sin charge all day - and broke below the key 102 level into the close.

“Black Swan” Author Nassim Nicholas Taleb DEMOLISHES the Claim that GMOs Are Low-Risk

By now all of our readers, if not so much the ECB (even though we know they read us religiously too), are aware that the biggest problem in Europe is the continent's moribund, and record low, credit creation courtesy of a clogged monetary transmission pipeline which has resulted in a -2% "growth" in loans to the private sector, which as monetarists (and certainly Austrians) everywhere know is the necessary (if not sufficient) condition to stimulate inflation in a continent drowning in deflation.

Gold prices are down 6.6% from the post-Crimea referendum highs mid-March (but remain up 9% in 2014). For the 3rd day in a row, precious metals have come under sudden selling pressure and this morning's has pushed Silver comfortably back below $20 and gold now back under $1,300. Notably copper prices are also fading on the heels of Chinese weakness overnight.

This is the way the world ends Not with a bang but a whimper. ~  T. S. Eliot

While the West keeps talking of "costs" for Russia - whether they be economic or social-freedom - it appears one company is benefiting from the post-sanctions period. OAO Moscow Exchange, the Russian stock exchange, is up 40% from Match 13th lows just before voters in Crimea voted to join Russia. As Bloomberg reports, daily equity trading volumes at the exchange surged to a record 72 billion rubles ($2 billion) in the first three weeks of March, compared with an average of 35 billion in February, the bourse said yesterday, as the exchange is "clearly benefiting from the current volatile environment."

The idea of “under-shooting inflation from below” is just ritual incantation. It provides the monetary central planners an excuse to keep the printing presses running red hot, but the true aim is not hard to see. After a 30 year rolling national LBO that has taken credit market debt outstanding to $59 trillion and to an off-the-charts leverage ratio of 3.5X national income, the American economy is saddled with $30 trillion of incremental household, business, financial and public debt compared to its historically sound leverage ratio of 1.5X GDP. We are at peak debt. Household, business and government balance sheets are tapped-out. The problem is not too little CPI inflation, but the unavoidability of a pay-back era of sustained debt deflation.

... does it mean that everyone saw right through the endless bluster, hollow rhetoric and empty promises of the man tasked with reading from a teleprompter, and currently in charge of one of the world's most totalitarian states? Because either someone is getting fired for forgetting to turn on the "applause" sign, or Europeans no longer care for the lies uttered by Obama on all topics NSA-related (and all other topics too). One wonders: how long until the US president finally gets the same treatment in his own country?

What is the shelf life of a system that rewards confidence-gaming sociopaths rather than competence? Let's connect the dots of natural selection and the pathology of power.

Not only is it deja vu all over again (again) but our warning this morning of reality of a virtual reality world coming unglued is all too real. Biotechs and Momos are at the lows of the day; Nasdaq and Russell 2000 are now down 3% post-Yellen and all major indices (including the IBM-sponsored Dow) are now in negative territory post-Yellen. Financials, ahead of tonight's CCAR, are also fading fast (catching down to their credit counterparts). Of course, it's all about USDJPY... (oh sorry - fun-durr-mentals)

What is the Bundesbank thinking? 

A week after the White House appeared to shun Blackberry (and ignored Apple's iPhones) as the WSJ reported it was testing Android-based smartphone replacements from LG and Samsung, it seems the Russians have the same idea. Whether this is another swing of the sanctions "boomerang" is unclear but ITAR-TASS reports that, because South Korean tablets have better information security, the Russian government is switching from iPads to Samsung. Communications Minister Nikiforov added this "isn't related to politics." We are sure...

Following yesterday's uninspiring 2 Year bond auction, today's 5 Year issuance of $35 billion was a whopper. Because while it was known well in advance that today's closing high yield of 1.715%, which priced through the When Issued of 1.732% by 1.7 bps, would be the highest since May 2011. However, the stunners were all within the internals. First, the Bid To Cover of 2.99 was the highest since September 2012, and an abrupt turn in the recent general downward trend in BTCs - who would have thunk that all it took for greater interest in US paper was higher yields . But it was the takedown where the real shockers lay.