Archive - Apr 2014

Despite consensus at 1.2% growth QoQ, the "weather" destroyed the fragile stimulus-led economy of the US which managed only a de minimus +0.1% QoQ growth (the lowest since Q1 2011). However, as Steve Liesman noted on the heels of Mark Zandi's comments "basically ignore this number" - ok then. Spending on Services, however, surged by the most since 2000 - heralded as great news by some talking heads - but is merely a reflection of the surge in healthcare and heating costs (imagine if it had not been cold and if Obamacare hadn't saved us). As a reminder - this is the growth that is occurring as QE has run its course, as stimulus ends, and as escape velocity nears... if the "weather" can do this much damage to the US economy, should stocks really be trading at the multiple of exuberant future hope that they are?

Since ADP is completely useless when it comes to actually hinting at the future and all it does is "confirm" whatever momentum the BLS reports on, today's print, like all those from the past, is absolutely meaningless. Still, for those who care, the April private jobs print, even though the month is not over yet, was 220K, above the 210K expected, with the last month revised once again higher from 191K to 209K - this was the highest number since November 2013. Sadly, since ADP continues to not report non-seasonally adjusted numbers (since it doesn't have them as all it does is take BLS numbers and gently massages them to appear relevant), there is no way of knowing what ADP is actually selling.

Last month it was a tribute to his cat. This month, the manager of the world's largest bond fund discusses sneezing: "A sneeze is, to be candid, sort of half erotic, a release of pressure that feels oh so good either before or just after the Achoo! The air, along with 100,000 germs, comes shooting out of your nose faster than a race car at the Indy 500. It feels sooooo good that people used to sneeze on purpose." He also discusses the aftermath: "The old saying goes that when the U.S. economy sneezes, the world catches cold. That still seems to be true enough, although Chinese influenza is gaining in importance. If both sneezed at the same time then instead of “God bless you” perhaps someone would cry out “God have mercy.” We’re not there yet, although in this period of high leverage it’s important to realize that the price of money and the servicing cost of that leverage are critical for a healthy economy. " He also talks about some other things, mostly revolving around long-term rates of return assumptions and what those mean for investors.

• Headline of the day goes to... Cold weather seen temporarily slowing U.S. economy (Reuters)
• Americans Want to Pull Back From World Stage, Poll Finds (WSJ)
• U.S. Plans to Charge BNP Over Sanctions (WSJ)
• What about Jay Carney: Putin Threat to Retaliate for Sanctions Carries Risks (BBG)
• Fed expected to take further step toward ending bond buying (Reuters)
• A Fed-Watcher’s Guide to FOMC Day: Steady Taper, Green Shoots (BBG)
• Alstom accepts 10 billion euro GE bid for its energy unit (Reuters)
• BOJ projects inflation exceeding 2 percent, keeps bullish view intact (Reuters)

Since it's not Tuesday (the only day that matters for stocks, of course), call it opposite, or rather stop hunt take out, day. First, it was the BOJ which, as we warned previously, would disappoint and not boost QE (sorry SocGen which had expected an increase in monetization today, and now expects nothing more from the BOJ until year end), which sent the USDJPY sliding, only to see the pair make up all the BOJ announcement losses and then some; and then it was Europe, where first German retail sales cratered, printing at -1.9%, down from 2.0% and on expectations of a 1.7% print, and then Eurozone inflation once again missed estimates, and while rising from the abysmal 0.5% in March printed at only 0.7% - hardly the runaway inflation stuff Draghi is praying for. What happened then: EURUSD tumbled then promptly rebounded a la the flash crash, and at last check was trading near the high of the day.

China May Actually Have Surpassed U.S. in 2010 or 2011

"The leaders of the Developed World have chipped away at the solidity that would ordinarily justify confidence in their leadership, markets and currencies, such that confidence can be lost at any moment. If confidence in a sound system is unfairly lost, then countertrend forces can act to stem the panic and restore stability. But a justified loss of confidence in an unsound system would generate much more damage and be, for a period of time and price, unstoppable. That result is what governments have risked by their poor policies, their lack of attention to the risks posed by the inventions of the modern financial system, and their neglect of the fiscal balance sheet. Since this combination is relatively new, particularly the enormity of Developed World debt and obligations, as well as the complexity and extraordinarily high leverage of the financial system (especially given the size of derivatives books), there is no way to tell exactly how it all will end. Badly, we guess." - Paul Singer

It's all the Russians' fault? This does not exactly look like de-escalation to us...

America’s massive prison system is creating a long list of unintended consequences, some of which will effect all of us in the coming years. To help explain just how bad things have gotten, we’ve compiled this list of the most stunning facts and statistics on the America’s prison system today.

It’s one thing to read an academic study showing how cancerous the political system is, it’s quite another to hear a description of how things work from one of the biggest crony weapons of mass societal destruction himself, Mr. Larry Summers..."I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People — powerful people — listen to what they have to say. But insiders also understand one unbreakable rule: They don’t criticize other insiders." Until the status quo gets the boot, this nation will continue to decline. Forget reforms, the entire status quo needs to be tossed aside once and for all. The insiders must be turned into outsiders.

As we noted previously, for the past year Abenomics has had the "get out of a jail free" card because while the plunging yen was crushing Japanese purchasing power, and sending nominal regular wages ever lower, at least the stock market was higher - so (some of the) locals could delude themselves they are getting richer, if only on paper. However, following the most recent 15% correction in the Nikkei which may soon become an all out rout if the 102 level in the USDJPY is ever "allowed" to break, all Japan suddenly has left, is the shock of soaring food and energy prices, and the hangover of declining wages that refuse to stop dropping. Case in point, tonight the Japan labor ministry reported that monthly wages excluding overtime and bonus payments fell 0.4 percent in March from a year earlier (the biggest drop in 2014), a series of declines which has now stretched to 22 consecutive months.

First-quarter growth in almost all Chinese provinces was below their annual targets, according to local media, with the most concerning data from resource-dependent and manufacturing-heavy provinces suffered the sharpest economic slowdown in the first quarter as the government pushed to tackle excessive factory capacity and pollution. As Reuters reports, the fastest growth regions are Chongqing, Guizhou and Tianjin and all saw growth drop significantly. Specific provinces affected by the government's reforms include Inner Mongolia, which provides one third of the coal supply in the country, saw GDP growth drop to 7.3% in Q1 from 9.9% a year earlier; Shanxi, a major coal producing province, which saw growth tumble to to only 5.5%; and Hebei province, the nation's top steel producer, collapsed to only 4.2% in the first quarter of 2014 from 8.2% in the previous quarter. It seems the sum of the parts is anything but the same as the whole.

If a foreclosure happens in the wilderness, does it make a sound? It seems like people have conveniently forgotten that since the housing crisis hit we have witnessed more than 7,000,000+ foreclosures. Do you think these people believe the Fed is almighty and can stop a speeding train or turn water into wine? Apparently some people forget that the Fed failed to prevent the tech bust or the housing bust in the first place. Now, the Fed is somehow the cult leader and the leader will not let housing values fall. The nation still has 9.1 million seriously underwater homeowners on top of the more than 7 million that have gone through foreclosure. It is abundantly clear that the mindless drivel of “buying is always a good decision” is just that. Investors are starting to pull back in expensive states because value is harder to find. I see the lemmings at open houses and you can see the drool at the side of their mouths hoping for a morsel of real estate.

According to shocking new numbers that were just released by the Bureau of Labor Statistics, 20 percent of American families do not have a single person that is working.  So when someone tries to tell you that the unemployment rate in the United States is about 7 percent, you should just laugh.  One-fifth of the families in the entire country do not have a single member with a job.  That is absolutely astonishing.  How can a family survive if nobody is making any money?  Well, the answer to that question is actually quite easy.  There is a reason why government dependence has reached epidemic levels in the United States.  Without enough jobs, tens of millions of additional Americans have been forced to reach out to the government for help.  At this point, if you can believe it, the number of Americans getting money or benefits from the federal government each month exceeds the number of full-time workers in the private sector by more than 60 million.

Despite the endless claims by Maduro and his merry men that the new-and-improved SICAD II anti-hyperinflation FX allocation system is working well, it seems it is anything but...

*VENEZUELA'S EMPRESAS POLAR HALTS PASTA PRODUCTION ON FX SHORTAGE

The firm, which produces multiple pasta products, has been forced to 'suspend' operations due to a lack of raw materials (wheat) because it has no foreign currency to use for settlement. Polar says it is working with authorities to find a solution.