Archive - May 15, 2014

Despite two desperate attempts to juice stocks overnight via JPY, US equities opened red and got redder. The selling climaxed when Europe closed and stocks rallied handsomely "off the lows" proving Tepper wrong and the rest of CNBC right (right?) The S&P ramped back up perfectly to VWAP (thank you Michelle) as 330ET BTFD'ers ensured it closed back above the all-important 50-day-moving-average. The Dow did not bounce like its higher-beta short-squeezing cousins and dropped back into the red for 2014. Away from stocks, bonds just kept rallying - but everyone said that couldn't happen - to new multi-month low yields for 10Y and 30Y (-13bps on the week). Commodities lost ground with gold back under $1300 as the USD ripped and dipped to close unchanged on the day. VIX popped back over 13 with its biggest rise in 5 weeks.

I never thought a visit to Omaha would trigger an appreciation of the role Icahn and other activist investors play in corporate America.

The self-proclaimed "people's governor" of Donetsk, Pavlo Gubarev, has, according to KyivPost, threatened "total annihilation" of Ukrainian armed forces moved into Donetsk region if Kyiv did not pull them away from "the cities of Donbas" within one hour.

We are happy to report that Zero Hedge is the first media outlet that Mario Draghi has very publicly, officially, and on the record, lied to. Because as we learned overnight, Europe most certainly had a "plan in place so that the markets don't basically collapse." Only it wasn't as Margio Draghi called it, Plan B. It was a different letter of the alphabet. Thanks to the FT's Peter Spiegel we now know that just over a year ago, in order to preserve the myth that Europe's power echelons are so "confident" with the Eurozone staying together they did not even consider a break up as a potential outcome, Draghi explicitly and on the record lied.

Presenting Europe's Plan Z.

Presented with little comment, aside to remind the 'money on the sideline'-watchers just how all-in everyone is already...

Regardless of which side of the low labor force participation rate argument you stand on, it is hard to argue that it is simply a function of retiring "baby boomers." While political arguments are great for debate, it is the economics that ultimately drive employment. While the Fed has inflated asset prices to the satisfaction of Wall Street, it has done little for the middle class. It is ultimately fiscal policy that will help business create employment, the problem is that businesses need less of it while government officials keep piling on more. In the meantime, stop blaming "baby boomers" for not retiring - they simply can't afford to.

Starring Turbo Timmah "Geithner"

Tensions between China and the U.S. continue to grow. On Wednesday, Beijing called U.S. Secretary remark about "provocative behavior" of China in the South China Sea "inspiring militancy," and insisted that the U.S. "stop encouraging the provocation" of the Philippines and Vietnam. As China Daily reports, China has expressed the view that the U.S. must abandon the "hypocrisy" and stop publicly support Vietnam and the Philippines in territorial disputes with China.

Yesterday we mocked China for being desperate enough to push its tumbling housing market (which directly and indirectly accounts for some 80% of Chinese GDP per SocGen estimates) no matter the cost, that at least 20 developers were offering the kinds of mortgages that resulted in the first credit bubble crack up boom and collapse, namely "Zero money down." Little did we know that the US, never one to lag in the financial innovation department had once again one-upped China, by bringing back from the dead the company that according to Housing Wire was "once a poster child for pre-crash subprime lending" - Ditech Mortgage Corp.  But best of all, ditech was known as a leader in subprime. The bulk of the mortgages were interest-only, low-documentation subprimes, and ditech was a pioneer in offering 125% loans allowing the borrower to borrow more than the sale price.

Moments ago the May TIC numbers did come out, and as expected, Russia indeed dumped a record $26 billion, or some 20% of all of its holdings, bringing its post-March total to just over $100 billion - the lowest since the Lehman crisis. But as shocking as this largely pre-telegraphed dump was, it pales in comparison with what we first observed, is the country that has quietly and quite rapidly become the third largest holder of US paper: Belgium.

When "new" GM emerged from bankruptcy, in addition to losing billions of taxpayer funds so the government can buy a few hundred thousand labor union votes, the narrative sold to the public is that the company is a new, and vastly improved version of the legacy monster that went bankrupt in 2009, and instead of worrying about its balance sheet, the company would have the freedom to innovate and impress new customers. However, following the recent spate of scandals rocking the "new" GM, the only thing that the bankruptcy appears to have done is pushed its litigation libailities into the pool of prepetition unsecured claims. As for the quality, well, not so much, which explains why recalls are now becoming a daily event such as the most recent one which as we learn today involves a whopping 3 million cars and trucks worldwide to fix five different safety problems that have triggered hundreds of complaints and some injuries, but no deaths. The bttom line: this most recent recall GM brings the total number of recalls for 2014 alone to 24 and includes 12.8 million vehicles worldwide,

Our Fed-fueled lottery-ticket economy will unravel with a vengeance in the years ahead. Malinvestment - the systemic consequence of the Federal Reserve's policies of near-zero interest rates and abundant credit - doesn't just inflate destruction asset bubbles: it poisons productive assets and the entire economy.

Francine Lacqua (Interviewer): Jim, you also have this new book out, right, saying "The Death of Money" and this basically argues that if a number of things come together, we could have financial warfare, deflation, hyperinflation, market collapse. And yet the markets are merrily going along. Are we in a fictitious world?

Hardly surprising given the surge in beef and pork that we have been noting, but according to the latest inflation data from the BLS, meat prices spike by almost 3% in April - the most since November 2003 (this is also the 2nd biggest price spike in 34 years!) As we noted previously, this soaring food price inflation is not about to stop anytime soon...