Archive - Apr 2014

While overall the beige book was an absolute snoozer, almost as boring as Yellen's earlier appearance at the economic club of New York, and its core message were quite bullish, namely that:

EIGHT OF 12 FED DISTRICTS SAY GROWTH `MODEST OR MODERATE'
FED SAYS ECONOMIC GROWTH `INCREASED IN MOST REGIONS' OF U.S.
FED SAYS LABOR MARKET CONDITIONS `MIXED BUT GENERALLY POSITIVE'

... confirming that the Beige Book contributors did not get the "ignore the dots" memo, the only "exciting" thing that everyone was looking for: what the Fed thought about the weather. Because with 103 instances of the word "weather" in the report (granted less than the 119 in February), it sure thought a lot.

We are now entering the fifth season of head-fakes about “escape velocity” acceleration in as many years. Yet the Wall Street stock peddlers and their financial media echo boxes are so fixated on the latest “delta”—that is, ultra short-term “high frequency” data releases—that time and again they serve up noise, not meaningful economic signal. The larger point here is that the Kool-Aid drinkers keep torturing the high frequency data because they are desperate for any sign that the Fed’s $3.5 trillion of QE has favorably impacted the Main Street economy. And that’s important not because it might mean some sorely needed income and job gains for middle America, but because its utterly necessary to validate the Fed’s financial bubble.

First we deny, then we deny we ever denied, and then we forget we were ever in denial. Man is an extremely efficient organic computing machine, so this is just kid’s stuff we learn right out of the crib.

About a month ago, English bank Co-Operative Bank plc, which in October was handed over to bondholders in order to plug a 1.5 billion pound capital shortfall and which added last month it will need to raise an additional 400 million pounds to plug another funding shortfall related to legal and restructuring costs, surprised its brand new owners with news that its full year loss would be a massive $2.2 billion. However the bank's insolvency was just the beginning, and the biggest surprise was not to be unveiled until today when UK prosecution charged Paul Flowers, the banks' former chairman from March 2010 until June 2013, and a Methodist minister, with possession of cocaine and ketamine. Oh and crystal meth.

When it comes to the real world, the difference between fascism, communism and crony-capitalism is semantic.

*YELLEN SAYS FED COMMITTED TO ACCOMMODATION TO SUPPORT RECOVERY

Markets will be hanging on every word of what is likely Janet Yellen's first monetary policy speech and even more so the Q&A afterwards as she suggests that a considerable time is more than 6 months, and the delicate balance she has to play between admitting the economy is ugly while admitting that QE is over no matter what... all the while maintaining some semblance of credibility. One has to wonder if the ripfest rally of the last 24 hours is a buy the rumor ramp ahead of a sell the Yellen news event as once again she is tested...

It wouldn't be the first time the Fed has "stretched" the truth...

"While the music is playing, you keep dancing," seems the only possible explanation for the fanatical demand for peripheral European bonds as everyone and their pet rabbit front-runs the ECB (or merely rushes to the 'yieldiest' thing given Draghi's implicit guarantee). At 3.1%, it beggars belief how 'risk' is mispriced in these sovereigns should any capital regulations ever mark sovereign debt as anything but riskless. Remember what happened the last time Draghi did any bond-buying (the SMP) - we saw bonds sell off into the actual actions of the central bank... so it seems the market continues to trade on the promise (and yet hope it never comes true)...

In one of his more vitriolic speeches, UKIP MEP Nigel Farage lashes out at the terrible deja vu being 'imposed' on supposedly democratic nations across Europe. "The whole European project is based on a falsehood... and it's a dangerous one.. because if you try to impose a new flag, a new anthem, a new president, a new army, a new police force; without first seeking the consent of the people you are creating the very nationalisms and resentment that the project was supposed to snuff out." Farage concludes, he is not against Europe but is "against this Europe," and this year's European elections will mark the turning point.

We believe Fed’s actions would be more appropriately described as permitted cancerous beliefs to spread throughout the financial system, thereby killing Democratic Capitalism which is the basis of the capital markets.

One glance at the 'ticks' surrounding this morning's so-called "fat finger" in EURCHF and it is clear that this was anything but a human trader falling asleep on his keyboard or accidently selling 100 yards and not 100 million CHF... Welcome to the 'unrigged' markets... (in FX also)... where stop-hunting algos rip to a 50-day moving-average in milliseconds to remove all stops before fading back ingloriously to unchanged. As Nanex suggests, this started in the CHF futures market...

Having been stopped out of his "long punt" in copper futures (which are, we remind readers, levered via margin and not a simple cash percentage loss of capital), world-renowned (for something) Dennis Gartman has issued his latest missive - ultimate contrarian call - advice... "we are sellers this morning of copper and buyers of crude oil, one relative to the other, with the problems in China weighing upon the former while crude has held impressively as other commodity prices have fallen." Crude oil longs beware... prepare to be Gartman'd.

Not much to add here that we haven't already said before about the state of demand for housing by the ordinary American.

Mayor Bill de Blasio is the first New York City mayor to release his tax returns in 12 years, according to the WSJ. de Blasio earned $165,000 as public advocate last year and brought in an additional $52,000 in rent on a second home he owns in Park Slope, according to his 2013 tax returns. Mr. de Blasio’s effective tax rate was 8.3%.

Last month's industrial production beat was revised up dramatically to its biggest beat since 1998 - courtesy of the annual revision of the data series as noted below - which left this month showing fading growth. Perhaps more disappointingly was the 4th miss of the last 5 months for manufacturiung production. Capacity Utlization rose to an impressive 79.2% as "slack" in the un-job-producing economy is rapidly disappearing. This was also the highest capicty utilization print (once again courtesy of the annual data revision) since June 2008.