Archive - May 2014

There's not much good news for housing these days. For a little while, the Fed's suppression of interest rates juiced housing enough to distract Americans from weak job creation and stagnant real wages. Don't have a job? No problem! Just borrow against the appreciation of your house to feed your family. But Yellen's interest rate wand looks to be out of magic. The government had a pipe dream of white picket fences for everyone. But Americans can't refinance their way to wealth. Especially in the Greater Depression.

"Responsibly," Bloomberg surveyed adults aged 26 and older across America and found that almost one-third of D.C. residents report binge-drinking in the last month. Utah, perhaps unsurprisingly, had the lowest binge-drinking percentage at a mere 15% (defined as five or more drinks in one day).

"My country can cry all it likes about yesterday’s referendum vote in eastern Ukraine, but we set the process in motion by sponsoring the overthrow of an elected Kiev government that was tilting toward Russia and away from NATO overtures. The president elected in 2010, Viktor Yanukovych, might have been a grifter and a scoundrel, but so was his opponent, the billionaire gas oligarch Yulia Tymoshenko. The main lesson that US authorities have consistently failed to learn in more than a decade of central Asian misadventures: when you set events in motion in distant lands, events, not policy planners at the State Department, end up in the driver’s seat."

Q1 2014 was the first negative EBITDA quarter for Elizabeth Arden since before Lehman (June 2008) and worst quarterly EBITDA loss for the company since Q3 2001... and the rest of the data was terrible:

*ELIZABETH ARDEN 3Q SALES $210.8M, EST. $255.7M; 3Q ADJ. LOSS/SHR 84C, EST. BREAK-EVEN

The reason... come on you can guess... "an unprecedented number of weather-related store closures in our North America business during the quarter."

“I am often asked why I do not support a more rapid deceleration of our purchases, given my agnosticism about their effectiveness and my concern that they might well be leading to froth in certain segments of the financial markets. The answer is an admission of reality: We juiced the trading and risk markets so extensively that they became somewhat addicted to our accommodation of their needs… you can’t go from Wild Turkey to cold turkey overnight."

- Fed Governor Richard Fisher

The Russell 2000 had its best day in over 17 months today - up 2.5% (best since Jan 2nd 2013) and +4% from Friday's lows. All US equity markets exploded higher our of the gate thanks to a ridiculous spike lower in VIX (below 12) and USDJPY stop-run back through 102 which squeezed "most shorted" dramatically higher. The Dow, Trannies, and S&P all made new record high closes...and it's not even Tuesday yet! Away from stocks, silver jumped over 2% for almost its best day in 3 months. Gold rebounded over $25 from overnight smackdown lows. Oil broke back above $100. Treasury yields rose modestly (2-3bps) - majorly out of sync with equity exuberance. JPY was large and in charge of stocks but the USD ended the day unchanged. S&P futures volume was 30% below recent average.

This is another example of creeping powers that pose a real threat to bank deposits. It will create further jitters about the safety of deposits and heighten the risk of bank runs. These risks highlight the importance of diversifying and having some of your wealth outside the vulnerable banking and financial system.

Since in America one now needs a Bachelor's degree (if not a PhD in economics, of course) to get a job as a waiter, according to the following chart the US may soon have a severe waiter shortage considering the cost of college tuition has outpaced even the income of the 1%. As for everyone else, forget it - want that French Polynesian belly-dancing major? Prepare to become a debt slave for life.

Last year it was Goldman Sachs telling clients to "dump your gold" (only to become the biggest buyers of the precious metal in the following quarter). Just last month, Morgan Stanley advised clients that 'gold will not see $1300 again'... and today, Bank of America joins the crowd as Macneil Curry advises "It is time to sell Gold" (to BAML we presume?)... as the range trade of the past month is completing and the downtrend is set to resume.

40% of European firms say the severity of late-payment problems were preventing them from hiring as "even when the public sector pays promptly, the money doesn't sloosh down the system promptly because of the culture of late payment." As the FT reports, small and medium-sized enterprises are the hardest hit by late-payment consequences with nearly three-quarters saying nothing has changed in the last few months and in fact nearly half saying the problem is getting worse. "The late payment consequences for businesses pose a real threat to Europe’s competitiveness and social wellbeing," warns one analyst, as "companies are deliberately not sticking to the provisions of the EU directive as a way of managing their cash flow." The reason - of course - the unintended consequences of policy-makers centrally planned efforts to ensure nothing bad ever befalls an important firm/nation ever again - "It's a way of borrowing off smaller companies – and they should be held to account."

Update: And just to make sure Russia has a catalyst: UKRAINE FORCES ATTACK EASTERN CITY OF SLOVYANSK, INTERFAX SAYS

With the US having voiced its support for Ukraine's "anti-terrorist" operations, and Russia strongly supportive of pro-Russian people's decisions to regional self-determination, the threats coming from the newly independent regions are a concern (that markets clearly do not care about):

*DONETSK ARMY SAYS WILL FIGHT UKRAINE FORCES IF DEADLINE IGNORED

Ukrainian military forces have 48 hours to leave the region or Donetsk own "anti-terrorist" forces will fight. Of course, with the US already saying the referendums are illegal and not recognizing them, we suspect it will be time for more sanctions soon (despite the lessons below).

No need to consider potentialities folks...

Having admitted that last week's air traffic control system crash was due to the fact that a U-2, Cold War-era, spy plane still in use by the U.S. military sparked a "glitch" in radar systems and grounded all west coast planes for over 45 minutes, Reuters reports that an inside account suggests this was due to a common design problem in the U.S. air traffic control system  - a lack of memory in the computer! What is perhaps more worrisome, in theory, the same vulnerability could have been used by an attacker in a deliberate shut-down, the experts said, and "shows a very basic limitation of the system," and could be used as a new "attack surface."

The solution to the erosion of the middle class lifestyle is to destroy debt and other fixed costs and eliminate self-sabotaging discretionary consumption.

"Good" economic news and "stronger than expected" earnings reports have apparently buoyed the market against the drain of liquidity from the Federal Reserve. Today, the market ripped higher at the open as hopes of a "QE" program from the ECB rippled through the markets. Despite commentary from the mainstream media that the markets are doing great, the updated chart below shows the markets continuing its tug-o-war between support and resistance. This is an important point to remember. While it is certainly possible that the markets could ratchet higher from here due to the "psychological momentum" that currently exists, the likelihood of a runaway bull market from here is remote.